From Fed Shake-Ups to Tariff Trouble: Protecting Your Portfolio Now | Rise UP!
Summary
Market Volatility: The concentration of 34% of S&P 500 gains in just seven stocks, including Apple, Microsoft, and Nvidia, raises concerns about increased market volatility and echoes the tech bubble of 1999.
Fed Independence: President Trump's unprecedented firing of Fed Governor Lisa Cook raises questions about the Fed's independence and potential impacts on monetary policy, which could lead to increased market volatility and shifts in asset allocation.
AI Sector Outlook: Despite Nvidia's strong earnings, a tepid outlook and weaker-than-expected data center revenue signal potential shifts in the AI sector, with a possible transition from infrastructure players to software and healthcare companies.
Tariff Impacts: The imposition of US tariffs on India, particularly affecting sectors like agriculture and electronics, could lead to increased consumer prices and impact global trade dynamics, with potential repercussions for US companies.
Investment Strategy: In light of current market conditions, diversification remains crucial, with recommendations to consider assets like gold, silver, and non-correlated investments such as private infrastructure to hedge against volatility.
Consumer Confidence: The dip in consumer confidence highlights economic concerns, suggesting a need for strategic asset allocation and liquidity planning to manage potential downturns.
Healthcare Sector Potential: Healthcare is identified as a defensive investment opportunity, offering historically low valuations and potential growth driven by AI advancements in drug development and policy changes.
Transcript
When you have 34% of the gains of the S&P and the market weight driven by seven stocks, what do you have? Increased volatility. This while it's not 1999 because these companies are hugely profitable. The valuations are starting to feel very much like 1999. [Applause] Welcome to Rise Up, where we take a look at the biggest stories this week. We break them down so you can understand what's happening so you can make better decisions on growing and protecting your portfolio. There's a lot going on in the markets today. It can be very confusing. Our mission at RiseUp is to help you with the best wealth management experts, the best conversations and the people who are actually directly working with clients. So, they're helping clients and they can also help you make very important financial decisions. I just want to remind you all that if you'd like to go on to wealthon.com for a free portfolio review, please do that. And also, I want to also just share that our guest host is back today. So, we're very, very excited. My name is Terry Coulson. I'm a managing partner at Rise Growth. I'm a CFP, but Joe Duran is with us today. Joe, it's good to have the band back again today. >> I know, Terry. I don't think for I think it's been at least a month since we were both on at the same time. So, it's awesome. It's not the same when I'm on without you and hopefully it feels the same way, but we have both the CFA and the CFP to talk about not just investing, but also planning and how to think about things. So, I'm thrilled to be here, Terry. Absolutely. >> Just came back from Columbus, Ohio where they're getting ready for a huge football game uh this weekend. Texas against Ohio State. The whole all of Columbus seemed to be buzzing about the game. So, um I got out just in time before all the lunacy kicked in for this weekend's kickoff. I'm surprised actually we didn't all wear our school colors uh for what is going to be a really exciting weekend of football. I'm thrilled that actually I hate the summer, but I'm very excited the football's back. >> Yeah, exactly. And I probably would have stayed had I known that Texas was playing Ohio. That that's going to be a fantastic game. But speaking of really fantastic, >> the Ohio State. They'll be get really annoyed if you call them Ohio because >> what should I call them, Joe? >> The Ohio State Ohio. That's right. The I forgot about that. That's right. Well, anyway, speaking of superstars, let's get to our superstar lineup today. We have Alexis Miller, director of investment research and alternative investments from OnePoint BFG Wealth Partners. Welcome, Alexis. >> Thanks for having me on, Terry and Joe. Good to be back. >> We're going to have fun. And then we have, you know, one of our blasts from the past, one of our very best, Dan. David Mandelbal here, who's the portfolio manager and wealth advisor at OnePoint BFG Wealth Partners. These are our experts. Welcome back, David. >> Thanks. Great to be here. >> All right. Well, let's get to our big three. Starting with one of the biggest stories of this week, President Trump's firing of Governor Lisa Cook on allegations that she may have falsified records in order to gain more favorable terms on a mortgage. Late this past Monday, Trump had posted a letter online saying that Cook was fired. This is the first time ever in a 112 year history that any president has moved to fire a Fed governor. Cook has really pushed back on this, filed a lawsuit just yesterday, calling this move unprecedented and illegal. She is seeking to block her firing and confirm her status as a member of the Fed board, stating that these allegations are unsubstantiated and do not qualify for cause for her removal. Well, this is a lot of information. >> Yeah. And Terry, I think it's important to just recap what she's actually accused of doing because I'm sure a lot of listeners might have skirted with this issue. >> It's actually that she has two homes and then I guess she refinanced. This is the allegations. We don't know if this is in fact true because there's been no investigation yet that's uh released results, >> but basically she's I think is being accused of saying that each of her homes was a primary residence. If you don't call it your primary residence, you get a higher mortgage rate by typically about a quarter of a percent. So even if it's true, we certainly don't want a bank regulator or one of the senior officials uh acting in a way that is in violation of the rules of conduct and of contract because she'd be misrepresenting. But I think the debate will be did she in fact do that? And the second debate is is that substantial enough to be to warrant cause and again we're not here to litigate whether it is or isn't. That's not our job. It is our job to think about the impact of a government of a president taking active steps to replace a governor who's in good standing and who it doesn't appear that the investigation's even completed yet. So I think what I see even though the markets are alltime highs is there is a question I think >> is this an overreach and does is this shaping the Fed so that we have a we're basically affecting the independence of the Federal Reserve >> that's right Joe the way you describe it you know with a person in charge of all the banks potentially having a bank challenge I think back you know that's like a smoking cardiologist right I mean >> exactly you're >> working with and you're smoking, but nobody knows if it's true or not. But Alexis, you have some insights here. When you look at this trying to fire Cook, do you believe this has any real implications for the market and Fed's credibility? >> Yeah, I mean, you know, with everything going on and who knows what is true and and what isn't. Um, but I think the perception is what really matters here. um really more so around what the administration is is trying to do here. Um but I do think if we see that monetary policy is being influenced more so by political agendas rather than data and all of the key you know factors that are typical. um that might cause concern and you know more volatility um and could really continue to drive this shift away from you know US denominated assets, treasuries, something that really is already underway um given some of the other you know geopolitical tensions, deficits um what have you that is already going on. So I think that is the bigger risk that you know maybe more money flows into gold and away from US Treasury assets. Yeah, I mean, we did start to see just some signs of that. The two-year Treasury yield dropped, gold prices rose, the US dollar weakened just slightly. So, we're going to have to keep our eye on that. But, >> and and Terry, I just add, you know, in addition, she's now counter sued this morning saying that she was removed being fired without the jurisdiction or without enough uh cause for being terminated. And I I I believe that the Supreme Court that not the Supreme Court, the the judge overhearing this has now fasttracked this to tomorrow. >> And this by itself would not be as big a deal if it wasn't the beginning of either a challenging and could be challenging environment for the president's position because if he wins or loses, it has implications. And then secondarily, is the Fed going to now be less like more less hawkish and more doubbish? Meaning they'll drop interest rates more than the forecasted 25 basis points that I think 86% likelihood of a 25% drop in September. If you put more dovish uh Fed reserve, Fed uh Fed voters into the mix, Fed governors, then that could likely lead to what what we were just talking about with Alexis, which is does it make the dollar go down? Does it make interest rates volatile? Does it make inflation peak its ugly head? And so all of these things are very interconnected. And really, it it does it does actually matter. Although I don't think any of us would think too much of a Fed governor were removed for one reason or another because there's a bunch of them there and the chairperson's the one that really counts. But it's this tension between the president and the Fed Reserve and it's actually there for a reason. It's like why Congress is there. It's why the legal system is there. It's to have checks and balances in the system. And you really don't want the president to dictate federal policy on interest rates or the way the banks work. That's there's a reason it was established as an independent entity. >> Yeah, the Fed's credibility has historically really helped anchor inflation expectations and so you know that could be something that may be at risk now. So, but let's move on to our next story which is Nvidia. Nvidia >> Nvidia Nvidia. I always just say it like it's got an N in front of it because it's too difficult to say Nvidia. I just say Nvidia. >> Oh, Nvidia. Okay. Well, see, I learned something new. So, >> I Joe, I learned something new on the show every week, so I'm in good shape now. Um, but their earnings report came out yesterday after market close, which showed that they beat expectations in the second quarter, but they issued a tepid outlook for future growth and their data center revenue was weaker than expected. As a result, shares fell after hours trading on Wednesday. Despite this, Nvidia analysts still raising their price targets for the company, while Trump also eased restrictions on Nvidia selling to China as long as the US government received a 15% share of revenue from China. It hasn't shown to have a material effect on their revenue yet. So, Alexis, I'm going to turn to you again. Nvidia has largely considered a bellweather in AI spend and a huge driver of market pricing with its large waitings in different indices. Might this signal a beginning of a slowdown in the AI trade? >> Yeah, I think you know with all things considered they did deliver a pretty good print um especially with all the ongoing uncertainty with China. Um but I think the reality remains the same. you have a $4 trillion market cap company that makes up for about 8% of the S&P. The bar is very high and it continues, you know, to be raised quarter after quarter. So, I think I don't know that we're there yet, but I think where we are going is maybe this shift and transition away from the exponential growth that has been somewhat normal for companies like Nvidia um and being a part of the AI trade. Um and we might start to see, you know, a shift in leadership where it moves away from some of the infrastructure players to um the players like software companies or even healthcare or different financial verticals that have a clearer path to actually being able to monetize um AI when it comes to margins, efficiency, productivity, and all of those sorts of things. But I don't think the AI trade is over. But I do think at some point in time whether that this is the beginning or not um that there will be a change in in leadership and a reccalibration. >> That's right. You know, David, we talked about healthcare over the last couple weeks and some of the potential surprises there, but do you feel like AI adoption as a durable trend in healthcare? Could this be a slowdown potentially and mean something for the sector as a whole? >> Yeah, I would make two points. Um fundament with regard to fundamentals it it's certainly a a durable driver for healthcare particularly in the drug development side. Um the exorbitant costs of of drug development that result in very high uh drug prices at launch is directly attributable to um the the failure rate of new compounds um and the low R low pharma R&D that we've seen uh AI should dramatically improve uh R&D yields in farm reduce drug development costs and time to market and and result in lower drug prices over time. So very impactful technically. The other point I would make is just from a a market perspective clearly health care has been a share uh provider in terms of from uh for the AI trade. So it's disproportionately we've seen a rotation out of healthcare. we've discussed this into the AI theme. So to the extent that AI growth um starts to slow and that the massive rotation that we've seen over the last couple years reverses, healthcare would should disproportionately benefit from an attract attracting investment investor capital standpoint. >> And so again, uh you know, Terry, there's something really interesting happened this week. For the first time ever, seven stocks made up 34% of the S&P 500. The value, seven stocks. Those seven stocks, Apple, Microsoft, Nvidia, Amazon, Meta, Alphabet, and Tesla are all benefiting from the air trade. Even Tesla, who has failing car sales, declining revenue, declining profitability. It's all about robotics and what they're doing with self-driving cars powered by AI. Look at firms like Apple which have lagged but now that they're talking up AI have started to perform. Microsoft, Nvidia, Meta, Alphabet all powered by AI. And here's the risk. When you have 34% of the gains of the S&P and the market weight driven by seven stocks, what do you have? Increased volatility. This while it's not 1999 because these companies are hugely profitable. the valuations are starting to feel very much like 1999. And when you have so much money concentrated on those seven stocks which are driving a third of the value of the S&P 500, what happens when one of them fails? Or if everybody decides we're overdone the AI thing, it adds for more volatility. And yet, interestingly enough, VIX hit its lowest level of the year this week. So what does that mean? It means people are not pricing in a potential decline. And here we are in August before what are traditionally very volatile months, September and October with incredibly high uh multiples with rates that have been stubbornly high. And I do think if you have not yet rebalanced your portfolio and have a lot in stocks because of the rally we've had, this is a very good time to think about rebalancing. just making sure that you don't have more equity exposure than you should have given the advance that we've had. And so again, not saying you should to market time, but just think about the assets you own like healthcare, whether you're underinvested in asset classes that haven't participated and also whether you need to diversify in other asset classes. >> Yeah, Joe, that's it's a phenomenal point. I I would just add very quickly one other point to re to emphasize what you just what you just said. Um, so Nvidia is trading at around uh 20 times uh next year's sales. Jensen Wong said that their $220 million revenue run rate should, you know, if you do his math, should double over the next five years. Okay, so maybe it's only trading 10 times revenue. You know, I come from the healthc care world where the market starts to discount patent cliffs five, six years in advance. Not saying Nvidia is facing a cliff but at some point you law of large numbers if the market starts to sense that the torid growth is going to slow it will be difficult to sustain these multiples which will lead to uh all the stuff that Joe noted >> look I think there's nothing more dangerous than a momentum stock when it loses momentum because there's so many people who got in who have gotten in who are tradition traditional growth investors and now only buy the stock because it's going up. Kind of like the meme stocks that you have to just be very careful and thoughtful, not because it's not a great company, but sometimes things get ahead of themselves. So again, I agree with David. You want to be very thoughtful about your portfolio construction right now because we're basically hoping for some very extraordinary things to happen from here and they might. But I think you want to be very careful when you have valuations as high as they are, risk premiums as low as they are. And again, not don't go to cash. Don't assume that it's going down because again, it might go for a while. But this is starting to feel like a time to really be careful about how you're allocated. >> That's a great point, Joe. And I want to point our viewers back to wealthon.com to do that portfolio review and then ask one of our adviserss here at one point for a portfolio review and a rebalancing. I mean, I think there's no better action to take right now as a result of this show than going right to wealthy.com. But I want to go to our third part which is the last story with 50% of US tariffs on India going into effect on Wednesday which has been a huge hit to the Indian economy. Their levies were doubled to 50% by the Trump administration because of India's purchase of Russian oil. These tariffs come at a time when the US administration has continued to push for more access to India's agriculture, dairy sectors and India is a major exporter to the US with things such as garments, footwear, sporting goods, furniture, chemicals and electronic goods. Even in all of this, Prime Minister Modi has vowed not to yield to the pressure and help cushion the blow from the tariffs. So, David Joe, I know you love to talk about tariffs. This has been a common theme. Joe, let's start with you. What are your thoughts on this? >> Look, uh I I think like most free economists and I just don't love tariffs. I know that they might be generating revenue, but they cloud the system. They allow for the lack of free trade to and from countries. And we've benefited immensely by the low cost of products. Now, it's been bad for the for the planet in some ways. Yes. Although we're not using this to improve our environment, we're doing this to basically generate revenue. It appears that we're doing that. But ultimately, it always gets to the consumer that people buying the product are going to pay because it is a tax. And I worry about counter measures on the other side which will allow for US companies to export less or if they have a big market. Remember the S&P 500, half of their earnings are from the rest of the world. Well, if it they counter measure in Europe, they said, "We're going to put taxes on US products." What are the US companies going to do? They're going to manufacture more in the in Europe. We won't be exporting from here to there. And so, what ends up happening is you become much more regional and much less global. And actually, believe it or not, people don't win in that circumstance. That's what we had in the 70s. And in order to offset the regionalism that occurred, we ended up with insanely high taxes to generate the revenue that the country needed to support its debt. So we have a lot of debt. We benefit by being the world's reserve currency. I worry because India is a major supplier of goods. When that tax comes into effect, if it's not deferred and we've got very good at deferring it, it will come through to prices in furniture and clothes. and we get if they've exempted drugs so far from India but what happens if it escalates again I think again the the economy is humming along the stock market's at new highs but again we haven't yet seen a pull through effect in fact you saw GDP up 3.3% last quarter as a rebound from a negative quarter in the first quarter so everything looks reasonably good but tariffs take a while to get through the system. So again, I think we'll see what the impact is because most of these tariffs have not actually been felt yet by the consumer. So it'll be interesting. David, I love your thoughts on this. >> Yeah, I mean I I completely agree with regard to the current exemption um that covers generic drugs. We better hope that sticks because generic drugs are 90% of US prescription volumes, roughly about 15% of dollar volume because they're so much cheaper. But these are companies that operate in fiercely competitive markets with razor thin margins. So, the imposition of tariffs would um lead to drug shortages of essential medications and would contravene the administration's stated goal of making America healthy again. >> That's right. And Alexis, you know, you're working with clients in the portfolio each and every day. Do you see this escalating um to a broader trade rift that investors may need to think about hedging against or which asset classes or alternative strategies might be most impacted? >> Yeah, absolutely. I mean, I think tariffs are not a new theme um for this year. We've been navigating through this, you know, since earlier in the year and went through some pretty challenging times in April. Um, so I think we're we're living it right now and the uncertainty still exists and doesn't seem like it's going anywhere anytime soon. Um, even if the market, you know, chooses to ignore it and continues to grind higher. But I think for us a few things, you know, diversification has always been important, but um is even more important in these types of environments where um especially given the composition of the S&P and all of the uncertainty and risk that are out there. um having diversification, having your liquidity needs planned for and set aside so that if things do go ary um you know, you're not being forced to sell equities at the wrong time and you're able to really navigate through the challenging times. But um some diversification assets that we like, gold and silver, which I know we've talked about at length, um on our other shows, um our grade hedges, you know, we think that that trade continues to do well from here. And then you know exposure to other non-correlated assets whether it's commodities and energy um or some of the alternative strategies like private infrastructure which sort of serves as that economic shock absorber in portfolios are are all things that we look to include but diversification uh is very important um regardless of of how you actually implement it. >> That's right. And you know, I think we've looked at all the data and all the different um areas of the market, but then there's a very important topic called the consumer confidence report, which really measures people people's confidence in the current market today. So, this is our big topic that I'd like to be able to answer the questions our viewers have sent in. But the August consumer confidence report, which came out this past Tuesday, it dipped again this month. It fell 1.3 points to 97.4. Now, that is not a huge drop, but you'd think with all the positive stock market, we might see that improve. But there's a lot of worries out there about income stagnating, cooling job market that have been weighing on Americans outlook. And there's something called the expectations index, which is about income, jobs, and overall conditions. and that also fell from a threshold of 80 down to 74.8. So there's some positives and there's some people obviously very much feeling the strain. So Alexis, I'd like you to think about one of our questions from Mike in Texas about this report. He asks, "What's the smartest way to protect savings in this type of environment? Should I consider safe haven assets like gold or other alternatives?" >> Sure. Um to kind of continue on on my last comment, you know, we always look at what are our clients liquidity needs. So if the question is regarding savings and you know any sort of immediate need for cash, we always like to have 12 18 months even 24 months of liquidity set aside so that again if things are happening in the market um that does not impact your ability to get um access to those savings or the cash. Um, as far as you know, other investable money, having again that diversification in non-correlated assets and safe havens like gold makes a lot of sense to us. um and having exposure to non-correlated things like infrastructure, even real estate. Um if you have a multist strategy hedge fund, things that act differently um and hopefully are going up or at least remaining stable when um the markets are going down. But always having that liquidity set aside is important. >> Terry, I'd add, you know, a couple things to think about here. Number one, when the markets fall more than 15%, if the S&P falls 15% or more, the correlation, the way asset classes behave, triples, which means that things that don't behave the way other things do, if the market falls more than 15%, they often start to behave in the same way because people the only real diversify in all instances is cash. And so, as Alexis said, one of the things you want to think about is bucketing strategies. So money you're going to need in the next two years should not be an at risk asset and presuming you have enough investable money which not everyone does and that's reflected in the consumer confidence index that you have the next 18 months two years of necessary cash available if you're still working that any foreseeable expenses you have over the next 18 months is in a savings account getting a yield or in a CD getting a yield. And then you have midterm money, 18 to five years. 18 months to five years. Maybe it's to pay for somebody's college. Maybe it's to pay for some a new home or an upgrade. Whatever you're doing with major per purchases, you can be a little bit of an equity and some risk, but you want to be in relatively stable assets. High yielding fixed income would be a choice. Assets that are not correlated would be another. Then your long-term money. The single most important thing you can do is have the right mix of stock and mods. And yes, it is really useful to have asset classes that are not correlated. Gold, precious metals, real estate, even stocks that have not participated as a way of diversifying. So I think you want to be very thoughtful. And does it matter that consumers feel stretched? Of course it matters because what we're seeing is a very serious stratification of our economy. People with a lot of assets have money in stocks and are doing just fine. But that's not the majority of Americans. The majority of Americans are trying to make their house payment, which has gone up, trying to maybe buy their first house, which is very, very difficult with real estate prices where they are and so little supply and costs in their everyday life going up. And so there's just not as much free capital. And if you don't have money in stocks because you don't have the savings, it's very hard to participate. If you're fortunate enough to have enough that you can make these bucketing strategies, then you want to make sure that you don't participate if things correct down. So I think a lot of the data that we're seeing is a very big spread between the people who own assets and are joining enjoying the value increases of their homes and of their stock market investments going up. And then the people that don't that are really struggling to make ends meet and can't imagine how they're going to get enough saved and maybe even struggling to match their 401k contributions, you know. >> Yeah, Joe, you know, that's really very close to what Marie from Nebraska is asking. And David, I'm going to throw this one out to you. She said, "How should we be thinking about investing when many folks are feeling much more cautious about the economy? Does that make sense to invest in healthcare?" >> Yeah, absolutely. to to the extent that some of the data we're seeing consumer confidence and and otherwise uh might precage an economic slowdown. One would want to increase waiting in less economically sensitive, less cyclical areas of the market, particularly those that are defensive with inelastic uh revenue drivers. So healthcare stands out because not only does it does it check those boxes, but the sector is incredibly cheap on an historical basis. Uh it's trading at a historically low valuation uh relative discount to the S&P. The S&P we've seen uh the forward P ratio I think it's around 23 times next year. Now healthc care has gone from 20 times to 16 over the past year. So, uh, the rest of the market has gotten more expensive, healthcare has gotten cheaper, and at the same time, we're about we're facing what should be some accelerating revenue and earnings growth for certain segments of of the the sector. Long-term powerful long-term secular uh growth drivers. And we need the last gating factor are these policy overhangs that have been pressuring the sector for all this year and longer. And we may be at the precipice of those starting to alleviate. So healthc care would be a a an obvious area to benefit to the extent that folks need to get more defensive. >> That's right. So, I think we've answered a lot of the questions, but you know, this is such an important topic around consumer confidence. I just want to open it up to Joe and Alexis. Any additional advice for our viewers? >> Well, I I would say one thing for everyone, which is it's important you focus on what you can control. You cannot control what happens with inflation. You cannot control what happens with the stock market. You have five things you can control. And it's very useful to think about focusing on the things that you actually have the ability to do anything with. The first one is you can choose how much you spend. And if you're nervous about the environment, then it's helpful to be in advance, not taking trips that are pushing your credit cards to the limit. Find the delicate balance of what trade-offs you can make because spending is easier to do when it's voluntary and not involuntary. when you lose your job or things go sideways. Second, you can control how much you save. That's obviously very linked to say to spending, but how much of your disposable income do you actually choose to put in the bank or into stocks? And that's another very important aspect. The third is you can choose how much risk you're going to take. And as I've mentioned, this is a time when we've had a really good climb in the markets. If you are invested, it's useful to just rebalance and make sure that your risk on your portfolio is not overly stretched because the market has gone up a lot and bonds have not kept up, which means that you probably have more in stocks than you originally expected at the beginning of the year, which is great, but it's also okay to rebalance and lock in some of those gains into your bonds and into cash. The fourth is how big of a safety net do you want? And one thing I always encourage people to do if you're nervous is build up your safety net. Give yourself the runway so that you don't panic when the markets go down and don't end up with a problem if if there are surprises none of us want more inflation, job losses, economy slowing down. We're currently right now if I were an if I am an equity investor and my biggest nervousness right now is the concentration in these big seven stocks and the AI situation. And so what I I think David has mentioned, Alexis has mentioned be very thoughtful of do I own the things that have not participated because I do recall in 2000 I was in the business for maybe eight years when that hit after the 1999 uh rally in internet stocks. I do recall that if you owned value stocks at that time, the Dow as an example, the Dow 30 stocks and did not own the NASDAQ, you did quite well. You had a positive year in the year 2000, even though the NASDAQ fell more than 50%. And so, I think again, unfortunately, the S&P is now so heavily weighted to these seven stocks that you might even think about getting into an S&P equal weighted so you don't have the heavy weighting to those seven stocks. So there are things you can do that are not bets on the market. They're just prudent risk management that I think again the market loves to climb a wall of worry. So as long as we're all talking about something going down, it's probably going to keep going up. But I do think again prudent, thoughtful ways of ensuring that your risk profile is in line with what you can stand if the markets go down. because I do think for September and October, it would not surprise me if we had a a rocky patch in here. And you want to be you don't want to be shifting in and out when the markets are making all kinds of crazy moves. >> Well, speaking of fall coming up, September, October, we are on the verge of a three-day weekend. Even though we'll we won't have anything on Monday because it's Labor Day. It'll be a shorter week, but there's no shortage of important information. So David, we have the ISM manufacturing and services coming out. What will you be watching? >> Yeah, I mean clearly we're we're it will be another data point to uh give some insight into just the direction of the economy. Um and you know we also have to couple that with just how that may inform the Fed which we discussed earlier with the September meeting coming up. So it will be it will be relevant. Um and again to the extent that there is some some additional softening it could start the process of some of the rotation that we've talked about but we may need multiple data points for that to really take hold. But but it will be a first step. >> Great. And next week we'll have employment numbers. ADP will be releasing on Thursday instead of Wednesday in September, but BLS will come out as on Friday as usual. Alexis, how do you see a soft or strong report influencing or positioning in equities versus alternatives? >> Yeah. So, similar to David's commentary, you know, it'll be another data point. Um, and if we do see, you know, continued softening, that could accelerate the case for rate cuts, even though it looks, you know, mo most likely that the Fed will cut in September. Um, but more broadly will probably reinforce concerns around a cooling economy. um and that you know if we get multiple data points in that direction ultimately maybe we do see um a rotation and flows into more defensive sectors as we talked about before like healthcare and utilities um or safe havens like gold as people you know join the more of the riskoff party. >> That's right. And we do have David um we also have the US trade deficit deficit coming out in July. You know how is the shifting US trade balance factor into your risk for health care companies? And Joe, please jump in on this one as well. >> Yeah, it's it's not as much of a a a factor for health care as you would expect as it is for other sectors. I mean there there are certain industries within healthcare that have zero exposure. the healthcare services complex for example pharma and and medtech h can have as much as 40% of their revenues um exposed to uh outside the US but we kind of know for the most part where most of the geographic uh tariffs are likely to to shake out um but who knows there's but uh it could always change it's the sectoral tariff for pharma that's that's the key unknown at this point And we we're we're expecting to get final clarity on that in in the near term. >> But but again, the considerations there are not driven by trade deficits, but there there are other factors at play. >> Look, we've we've had we've I can't recall a time where we've had so much change in the e economic balance around the world and how we're all operating. China was the original enemy in the financial sense. Now India has more extreme tariffs than China does and they've always been a fairly friendly nation. A lot of companies have moved uh manufacturing from China, moved it to India and Vietnam and they're not getting the kind of benefits to working with friendly nations that they would have liked. I think this is an interesting time honestly. Then you add the overlay of AI. The truth is that US companies are incredibly nimble and do incredibly well adjusting to what happens. That doesn't mean that consumers don't suffer as well. So, one of the interesting things is that the worse the economy does, the higher the likelihood of interest rates being dropped and therefore the likelyhood of stocks going up. So, you never really know how the market's going to react. I don't know that the trade imbalance is as important as what happens with the dollar because again if the dollar goes down imports become even more expensive and you add tariffs they become even more expensive all of which are inflationary for US consumers. So I again I don't think we've seen the pull through costs yet to the consumer of tariffs. I think the Fed that's why they're playing it slow with interest rates but we'll see. And again we have to remember home prices are not driven by short-term rates. They're driven by what happens with the tenure which has been stubbornly high. So I think it's going to be an interesting week. I think the first week back, everyone back from the summer vacation, everyone having watched football all weekend. I think next week's going to be very telling if we're going to have a tough September and October and this is seasonally a relatively challenging time. And so we'll see. Are we going to run into year end or are people going to lock in their gains and say we've done great. Let's not let's not lose it. Let's not lose any money going into the year end. So again, this can be a challenging period. The end of the first administration, the first year from September to June, it's historically uh it can be a difficult time. So let's hope that's not the case because we all would rather have the market going up. But in the meantime, make sure that you're balanced appropriately uh for whatever may come. >> Yeah. In the meantime, make sure that you have a good three-day weekend. Right. >> Exactly. Joe, what are you doing over the three-day weekend? >> I have a beach volleyball tournament that I'm very excited about. It's a Kolkata and I will that's on Sunday. So, I get to spend Saturday watching more football than any of my girls want to hear, but I'm excited for it. >> And which team are you cheering for? >> Well, I went to Cal, so I naturally go there, but they always break my heart. So, um I I I can't tell you who I'm rooting to lose because I don't want to make any enemies, but I I usually just I'm actually really excited to see uh Manning's I guess nephew play just because there's so much hype. So, I'm just interested to see and I was just there at the Ohio State. So, that's the game I'm most excited to watch and just as a fan, I don't really have a rooting interest. >> Wonderful. >> I didn't say that. Buckeye. I didn't say that. Alexis, what are you doing? >> Not much. I'm looking forward to taking it easy. Maybe playing some golf, enjoying the lack of humidity here in New Jersey. So, not much, but >> And David, >> uh, yeah, we're we're laying Well, sort of. We, my wife and I will be hosting our young adult children's party. So, uh, let's hope they don't make too much of a mess. >> Oh, good. Well, we are actually going to Wine Country. our original place we were supposed to go, you know, there's a huge fire. It's called the Picket Fire here in Northern California, which has impacted one of my favorite places called Silverado Trail in um Napa. And so my husband and I uh quickly made a reroute, a detour to find wine in a different part of California. So we're still excited about that. >> Terry, we won't tell anyone how you like your red wine. >> No, I can't I can't dare tell people right here. art little secret. So, our our viewers will keep coming back if they don't understand how I drink wine. So, that'll be good. Well, I just want to say thank you to Joe, David, and Alexis. This has been a great show. I know our viewers are very grateful for your expertise and your guidance as we go. >> And enjoy your Labor Day. Celebrate the hard work you've done to get where you are, no matter who you are and what you do. And thanks for listening. >> Yeah. Thank you everyone. Have a great week. >> Thanks everyone. >> Thanks.
From Fed Shake-Ups to Tariff Trouble: Protecting Your Portfolio Now | Rise UP!
Summary
Transcript
When you have 34% of the gains of the S&P and the market weight driven by seven stocks, what do you have? Increased volatility. This while it's not 1999 because these companies are hugely profitable. The valuations are starting to feel very much like 1999. [Applause] Welcome to Rise Up, where we take a look at the biggest stories this week. We break them down so you can understand what's happening so you can make better decisions on growing and protecting your portfolio. There's a lot going on in the markets today. It can be very confusing. Our mission at RiseUp is to help you with the best wealth management experts, the best conversations and the people who are actually directly working with clients. So, they're helping clients and they can also help you make very important financial decisions. I just want to remind you all that if you'd like to go on to wealthon.com for a free portfolio review, please do that. And also, I want to also just share that our guest host is back today. So, we're very, very excited. My name is Terry Coulson. I'm a managing partner at Rise Growth. I'm a CFP, but Joe Duran is with us today. Joe, it's good to have the band back again today. >> I know, Terry. I don't think for I think it's been at least a month since we were both on at the same time. So, it's awesome. It's not the same when I'm on without you and hopefully it feels the same way, but we have both the CFA and the CFP to talk about not just investing, but also planning and how to think about things. So, I'm thrilled to be here, Terry. Absolutely. >> Just came back from Columbus, Ohio where they're getting ready for a huge football game uh this weekend. Texas against Ohio State. The whole all of Columbus seemed to be buzzing about the game. So, um I got out just in time before all the lunacy kicked in for this weekend's kickoff. I'm surprised actually we didn't all wear our school colors uh for what is going to be a really exciting weekend of football. I'm thrilled that actually I hate the summer, but I'm very excited the football's back. >> Yeah, exactly. And I probably would have stayed had I known that Texas was playing Ohio. That that's going to be a fantastic game. But speaking of really fantastic, >> the Ohio State. They'll be get really annoyed if you call them Ohio because >> what should I call them, Joe? >> The Ohio State Ohio. That's right. The I forgot about that. That's right. Well, anyway, speaking of superstars, let's get to our superstar lineup today. We have Alexis Miller, director of investment research and alternative investments from OnePoint BFG Wealth Partners. Welcome, Alexis. >> Thanks for having me on, Terry and Joe. Good to be back. >> We're going to have fun. And then we have, you know, one of our blasts from the past, one of our very best, Dan. David Mandelbal here, who's the portfolio manager and wealth advisor at OnePoint BFG Wealth Partners. These are our experts. Welcome back, David. >> Thanks. Great to be here. >> All right. Well, let's get to our big three. Starting with one of the biggest stories of this week, President Trump's firing of Governor Lisa Cook on allegations that she may have falsified records in order to gain more favorable terms on a mortgage. Late this past Monday, Trump had posted a letter online saying that Cook was fired. This is the first time ever in a 112 year history that any president has moved to fire a Fed governor. Cook has really pushed back on this, filed a lawsuit just yesterday, calling this move unprecedented and illegal. She is seeking to block her firing and confirm her status as a member of the Fed board, stating that these allegations are unsubstantiated and do not qualify for cause for her removal. Well, this is a lot of information. >> Yeah. And Terry, I think it's important to just recap what she's actually accused of doing because I'm sure a lot of listeners might have skirted with this issue. >> It's actually that she has two homes and then I guess she refinanced. This is the allegations. We don't know if this is in fact true because there's been no investigation yet that's uh released results, >> but basically she's I think is being accused of saying that each of her homes was a primary residence. If you don't call it your primary residence, you get a higher mortgage rate by typically about a quarter of a percent. So even if it's true, we certainly don't want a bank regulator or one of the senior officials uh acting in a way that is in violation of the rules of conduct and of contract because she'd be misrepresenting. But I think the debate will be did she in fact do that? And the second debate is is that substantial enough to be to warrant cause and again we're not here to litigate whether it is or isn't. That's not our job. It is our job to think about the impact of a government of a president taking active steps to replace a governor who's in good standing and who it doesn't appear that the investigation's even completed yet. So I think what I see even though the markets are alltime highs is there is a question I think >> is this an overreach and does is this shaping the Fed so that we have a we're basically affecting the independence of the Federal Reserve >> that's right Joe the way you describe it you know with a person in charge of all the banks potentially having a bank challenge I think back you know that's like a smoking cardiologist right I mean >> exactly you're >> working with and you're smoking, but nobody knows if it's true or not. But Alexis, you have some insights here. When you look at this trying to fire Cook, do you believe this has any real implications for the market and Fed's credibility? >> Yeah, I mean, you know, with everything going on and who knows what is true and and what isn't. Um, but I think the perception is what really matters here. um really more so around what the administration is is trying to do here. Um but I do think if we see that monetary policy is being influenced more so by political agendas rather than data and all of the key you know factors that are typical. um that might cause concern and you know more volatility um and could really continue to drive this shift away from you know US denominated assets, treasuries, something that really is already underway um given some of the other you know geopolitical tensions, deficits um what have you that is already going on. So I think that is the bigger risk that you know maybe more money flows into gold and away from US Treasury assets. Yeah, I mean, we did start to see just some signs of that. The two-year Treasury yield dropped, gold prices rose, the US dollar weakened just slightly. So, we're going to have to keep our eye on that. But, >> and and Terry, I just add, you know, in addition, she's now counter sued this morning saying that she was removed being fired without the jurisdiction or without enough uh cause for being terminated. And I I I believe that the Supreme Court that not the Supreme Court, the the judge overhearing this has now fasttracked this to tomorrow. >> And this by itself would not be as big a deal if it wasn't the beginning of either a challenging and could be challenging environment for the president's position because if he wins or loses, it has implications. And then secondarily, is the Fed going to now be less like more less hawkish and more doubbish? Meaning they'll drop interest rates more than the forecasted 25 basis points that I think 86% likelihood of a 25% drop in September. If you put more dovish uh Fed reserve, Fed uh Fed voters into the mix, Fed governors, then that could likely lead to what what we were just talking about with Alexis, which is does it make the dollar go down? Does it make interest rates volatile? Does it make inflation peak its ugly head? And so all of these things are very interconnected. And really, it it does it does actually matter. Although I don't think any of us would think too much of a Fed governor were removed for one reason or another because there's a bunch of them there and the chairperson's the one that really counts. But it's this tension between the president and the Fed Reserve and it's actually there for a reason. It's like why Congress is there. It's why the legal system is there. It's to have checks and balances in the system. And you really don't want the president to dictate federal policy on interest rates or the way the banks work. That's there's a reason it was established as an independent entity. >> Yeah, the Fed's credibility has historically really helped anchor inflation expectations and so you know that could be something that may be at risk now. So, but let's move on to our next story which is Nvidia. Nvidia >> Nvidia Nvidia. I always just say it like it's got an N in front of it because it's too difficult to say Nvidia. I just say Nvidia. >> Oh, Nvidia. Okay. Well, see, I learned something new. So, >> I Joe, I learned something new on the show every week, so I'm in good shape now. Um, but their earnings report came out yesterday after market close, which showed that they beat expectations in the second quarter, but they issued a tepid outlook for future growth and their data center revenue was weaker than expected. As a result, shares fell after hours trading on Wednesday. Despite this, Nvidia analysts still raising their price targets for the company, while Trump also eased restrictions on Nvidia selling to China as long as the US government received a 15% share of revenue from China. It hasn't shown to have a material effect on their revenue yet. So, Alexis, I'm going to turn to you again. Nvidia has largely considered a bellweather in AI spend and a huge driver of market pricing with its large waitings in different indices. Might this signal a beginning of a slowdown in the AI trade? >> Yeah, I think you know with all things considered they did deliver a pretty good print um especially with all the ongoing uncertainty with China. Um but I think the reality remains the same. you have a $4 trillion market cap company that makes up for about 8% of the S&P. The bar is very high and it continues, you know, to be raised quarter after quarter. So, I think I don't know that we're there yet, but I think where we are going is maybe this shift and transition away from the exponential growth that has been somewhat normal for companies like Nvidia um and being a part of the AI trade. Um and we might start to see, you know, a shift in leadership where it moves away from some of the infrastructure players to um the players like software companies or even healthcare or different financial verticals that have a clearer path to actually being able to monetize um AI when it comes to margins, efficiency, productivity, and all of those sorts of things. But I don't think the AI trade is over. But I do think at some point in time whether that this is the beginning or not um that there will be a change in in leadership and a reccalibration. >> That's right. You know, David, we talked about healthcare over the last couple weeks and some of the potential surprises there, but do you feel like AI adoption as a durable trend in healthcare? Could this be a slowdown potentially and mean something for the sector as a whole? >> Yeah, I would make two points. Um fundament with regard to fundamentals it it's certainly a a durable driver for healthcare particularly in the drug development side. Um the exorbitant costs of of drug development that result in very high uh drug prices at launch is directly attributable to um the the failure rate of new compounds um and the low R low pharma R&D that we've seen uh AI should dramatically improve uh R&D yields in farm reduce drug development costs and time to market and and result in lower drug prices over time. So very impactful technically. The other point I would make is just from a a market perspective clearly health care has been a share uh provider in terms of from uh for the AI trade. So it's disproportionately we've seen a rotation out of healthcare. we've discussed this into the AI theme. So to the extent that AI growth um starts to slow and that the massive rotation that we've seen over the last couple years reverses, healthcare would should disproportionately benefit from an attract attracting investment investor capital standpoint. >> And so again, uh you know, Terry, there's something really interesting happened this week. For the first time ever, seven stocks made up 34% of the S&P 500. The value, seven stocks. Those seven stocks, Apple, Microsoft, Nvidia, Amazon, Meta, Alphabet, and Tesla are all benefiting from the air trade. Even Tesla, who has failing car sales, declining revenue, declining profitability. It's all about robotics and what they're doing with self-driving cars powered by AI. Look at firms like Apple which have lagged but now that they're talking up AI have started to perform. Microsoft, Nvidia, Meta, Alphabet all powered by AI. And here's the risk. When you have 34% of the gains of the S&P and the market weight driven by seven stocks, what do you have? Increased volatility. This while it's not 1999 because these companies are hugely profitable. the valuations are starting to feel very much like 1999. And when you have so much money concentrated on those seven stocks which are driving a third of the value of the S&P 500, what happens when one of them fails? Or if everybody decides we're overdone the AI thing, it adds for more volatility. And yet, interestingly enough, VIX hit its lowest level of the year this week. So what does that mean? It means people are not pricing in a potential decline. And here we are in August before what are traditionally very volatile months, September and October with incredibly high uh multiples with rates that have been stubbornly high. And I do think if you have not yet rebalanced your portfolio and have a lot in stocks because of the rally we've had, this is a very good time to think about rebalancing. just making sure that you don't have more equity exposure than you should have given the advance that we've had. And so again, not saying you should to market time, but just think about the assets you own like healthcare, whether you're underinvested in asset classes that haven't participated and also whether you need to diversify in other asset classes. >> Yeah, Joe, that's it's a phenomenal point. I I would just add very quickly one other point to re to emphasize what you just what you just said. Um, so Nvidia is trading at around uh 20 times uh next year's sales. Jensen Wong said that their $220 million revenue run rate should, you know, if you do his math, should double over the next five years. Okay, so maybe it's only trading 10 times revenue. You know, I come from the healthc care world where the market starts to discount patent cliffs five, six years in advance. Not saying Nvidia is facing a cliff but at some point you law of large numbers if the market starts to sense that the torid growth is going to slow it will be difficult to sustain these multiples which will lead to uh all the stuff that Joe noted >> look I think there's nothing more dangerous than a momentum stock when it loses momentum because there's so many people who got in who have gotten in who are tradition traditional growth investors and now only buy the stock because it's going up. Kind of like the meme stocks that you have to just be very careful and thoughtful, not because it's not a great company, but sometimes things get ahead of themselves. So again, I agree with David. You want to be very thoughtful about your portfolio construction right now because we're basically hoping for some very extraordinary things to happen from here and they might. But I think you want to be very careful when you have valuations as high as they are, risk premiums as low as they are. And again, not don't go to cash. Don't assume that it's going down because again, it might go for a while. But this is starting to feel like a time to really be careful about how you're allocated. >> That's a great point, Joe. And I want to point our viewers back to wealthon.com to do that portfolio review and then ask one of our adviserss here at one point for a portfolio review and a rebalancing. I mean, I think there's no better action to take right now as a result of this show than going right to wealthy.com. But I want to go to our third part which is the last story with 50% of US tariffs on India going into effect on Wednesday which has been a huge hit to the Indian economy. Their levies were doubled to 50% by the Trump administration because of India's purchase of Russian oil. These tariffs come at a time when the US administration has continued to push for more access to India's agriculture, dairy sectors and India is a major exporter to the US with things such as garments, footwear, sporting goods, furniture, chemicals and electronic goods. Even in all of this, Prime Minister Modi has vowed not to yield to the pressure and help cushion the blow from the tariffs. So, David Joe, I know you love to talk about tariffs. This has been a common theme. Joe, let's start with you. What are your thoughts on this? >> Look, uh I I think like most free economists and I just don't love tariffs. I know that they might be generating revenue, but they cloud the system. They allow for the lack of free trade to and from countries. And we've benefited immensely by the low cost of products. Now, it's been bad for the for the planet in some ways. Yes. Although we're not using this to improve our environment, we're doing this to basically generate revenue. It appears that we're doing that. But ultimately, it always gets to the consumer that people buying the product are going to pay because it is a tax. And I worry about counter measures on the other side which will allow for US companies to export less or if they have a big market. Remember the S&P 500, half of their earnings are from the rest of the world. Well, if it they counter measure in Europe, they said, "We're going to put taxes on US products." What are the US companies going to do? They're going to manufacture more in the in Europe. We won't be exporting from here to there. And so, what ends up happening is you become much more regional and much less global. And actually, believe it or not, people don't win in that circumstance. That's what we had in the 70s. And in order to offset the regionalism that occurred, we ended up with insanely high taxes to generate the revenue that the country needed to support its debt. So we have a lot of debt. We benefit by being the world's reserve currency. I worry because India is a major supplier of goods. When that tax comes into effect, if it's not deferred and we've got very good at deferring it, it will come through to prices in furniture and clothes. and we get if they've exempted drugs so far from India but what happens if it escalates again I think again the the economy is humming along the stock market's at new highs but again we haven't yet seen a pull through effect in fact you saw GDP up 3.3% last quarter as a rebound from a negative quarter in the first quarter so everything looks reasonably good but tariffs take a while to get through the system. So again, I think we'll see what the impact is because most of these tariffs have not actually been felt yet by the consumer. So it'll be interesting. David, I love your thoughts on this. >> Yeah, I mean I I completely agree with regard to the current exemption um that covers generic drugs. We better hope that sticks because generic drugs are 90% of US prescription volumes, roughly about 15% of dollar volume because they're so much cheaper. But these are companies that operate in fiercely competitive markets with razor thin margins. So, the imposition of tariffs would um lead to drug shortages of essential medications and would contravene the administration's stated goal of making America healthy again. >> That's right. And Alexis, you know, you're working with clients in the portfolio each and every day. Do you see this escalating um to a broader trade rift that investors may need to think about hedging against or which asset classes or alternative strategies might be most impacted? >> Yeah, absolutely. I mean, I think tariffs are not a new theme um for this year. We've been navigating through this, you know, since earlier in the year and went through some pretty challenging times in April. Um, so I think we're we're living it right now and the uncertainty still exists and doesn't seem like it's going anywhere anytime soon. Um, even if the market, you know, chooses to ignore it and continues to grind higher. But I think for us a few things, you know, diversification has always been important, but um is even more important in these types of environments where um especially given the composition of the S&P and all of the uncertainty and risk that are out there. um having diversification, having your liquidity needs planned for and set aside so that if things do go ary um you know, you're not being forced to sell equities at the wrong time and you're able to really navigate through the challenging times. But um some diversification assets that we like, gold and silver, which I know we've talked about at length, um on our other shows, um our grade hedges, you know, we think that that trade continues to do well from here. And then you know exposure to other non-correlated assets whether it's commodities and energy um or some of the alternative strategies like private infrastructure which sort of serves as that economic shock absorber in portfolios are are all things that we look to include but diversification uh is very important um regardless of of how you actually implement it. >> That's right. And you know, I think we've looked at all the data and all the different um areas of the market, but then there's a very important topic called the consumer confidence report, which really measures people people's confidence in the current market today. So, this is our big topic that I'd like to be able to answer the questions our viewers have sent in. But the August consumer confidence report, which came out this past Tuesday, it dipped again this month. It fell 1.3 points to 97.4. Now, that is not a huge drop, but you'd think with all the positive stock market, we might see that improve. But there's a lot of worries out there about income stagnating, cooling job market that have been weighing on Americans outlook. And there's something called the expectations index, which is about income, jobs, and overall conditions. and that also fell from a threshold of 80 down to 74.8. So there's some positives and there's some people obviously very much feeling the strain. So Alexis, I'd like you to think about one of our questions from Mike in Texas about this report. He asks, "What's the smartest way to protect savings in this type of environment? Should I consider safe haven assets like gold or other alternatives?" >> Sure. Um to kind of continue on on my last comment, you know, we always look at what are our clients liquidity needs. So if the question is regarding savings and you know any sort of immediate need for cash, we always like to have 12 18 months even 24 months of liquidity set aside so that again if things are happening in the market um that does not impact your ability to get um access to those savings or the cash. Um, as far as you know, other investable money, having again that diversification in non-correlated assets and safe havens like gold makes a lot of sense to us. um and having exposure to non-correlated things like infrastructure, even real estate. Um if you have a multist strategy hedge fund, things that act differently um and hopefully are going up or at least remaining stable when um the markets are going down. But always having that liquidity set aside is important. >> Terry, I'd add, you know, a couple things to think about here. Number one, when the markets fall more than 15%, if the S&P falls 15% or more, the correlation, the way asset classes behave, triples, which means that things that don't behave the way other things do, if the market falls more than 15%, they often start to behave in the same way because people the only real diversify in all instances is cash. And so, as Alexis said, one of the things you want to think about is bucketing strategies. So money you're going to need in the next two years should not be an at risk asset and presuming you have enough investable money which not everyone does and that's reflected in the consumer confidence index that you have the next 18 months two years of necessary cash available if you're still working that any foreseeable expenses you have over the next 18 months is in a savings account getting a yield or in a CD getting a yield. And then you have midterm money, 18 to five years. 18 months to five years. Maybe it's to pay for somebody's college. Maybe it's to pay for some a new home or an upgrade. Whatever you're doing with major per purchases, you can be a little bit of an equity and some risk, but you want to be in relatively stable assets. High yielding fixed income would be a choice. Assets that are not correlated would be another. Then your long-term money. The single most important thing you can do is have the right mix of stock and mods. And yes, it is really useful to have asset classes that are not correlated. Gold, precious metals, real estate, even stocks that have not participated as a way of diversifying. So I think you want to be very thoughtful. And does it matter that consumers feel stretched? Of course it matters because what we're seeing is a very serious stratification of our economy. People with a lot of assets have money in stocks and are doing just fine. But that's not the majority of Americans. The majority of Americans are trying to make their house payment, which has gone up, trying to maybe buy their first house, which is very, very difficult with real estate prices where they are and so little supply and costs in their everyday life going up. And so there's just not as much free capital. And if you don't have money in stocks because you don't have the savings, it's very hard to participate. If you're fortunate enough to have enough that you can make these bucketing strategies, then you want to make sure that you don't participate if things correct down. So I think a lot of the data that we're seeing is a very big spread between the people who own assets and are joining enjoying the value increases of their homes and of their stock market investments going up. And then the people that don't that are really struggling to make ends meet and can't imagine how they're going to get enough saved and maybe even struggling to match their 401k contributions, you know. >> Yeah, Joe, you know, that's really very close to what Marie from Nebraska is asking. And David, I'm going to throw this one out to you. She said, "How should we be thinking about investing when many folks are feeling much more cautious about the economy? Does that make sense to invest in healthcare?" >> Yeah, absolutely. to to the extent that some of the data we're seeing consumer confidence and and otherwise uh might precage an economic slowdown. One would want to increase waiting in less economically sensitive, less cyclical areas of the market, particularly those that are defensive with inelastic uh revenue drivers. So healthcare stands out because not only does it does it check those boxes, but the sector is incredibly cheap on an historical basis. Uh it's trading at a historically low valuation uh relative discount to the S&P. The S&P we've seen uh the forward P ratio I think it's around 23 times next year. Now healthc care has gone from 20 times to 16 over the past year. So, uh, the rest of the market has gotten more expensive, healthcare has gotten cheaper, and at the same time, we're about we're facing what should be some accelerating revenue and earnings growth for certain segments of of the the sector. Long-term powerful long-term secular uh growth drivers. And we need the last gating factor are these policy overhangs that have been pressuring the sector for all this year and longer. And we may be at the precipice of those starting to alleviate. So healthc care would be a a an obvious area to benefit to the extent that folks need to get more defensive. >> That's right. So, I think we've answered a lot of the questions, but you know, this is such an important topic around consumer confidence. I just want to open it up to Joe and Alexis. Any additional advice for our viewers? >> Well, I I would say one thing for everyone, which is it's important you focus on what you can control. You cannot control what happens with inflation. You cannot control what happens with the stock market. You have five things you can control. And it's very useful to think about focusing on the things that you actually have the ability to do anything with. The first one is you can choose how much you spend. And if you're nervous about the environment, then it's helpful to be in advance, not taking trips that are pushing your credit cards to the limit. Find the delicate balance of what trade-offs you can make because spending is easier to do when it's voluntary and not involuntary. when you lose your job or things go sideways. Second, you can control how much you save. That's obviously very linked to say to spending, but how much of your disposable income do you actually choose to put in the bank or into stocks? And that's another very important aspect. The third is you can choose how much risk you're going to take. And as I've mentioned, this is a time when we've had a really good climb in the markets. If you are invested, it's useful to just rebalance and make sure that your risk on your portfolio is not overly stretched because the market has gone up a lot and bonds have not kept up, which means that you probably have more in stocks than you originally expected at the beginning of the year, which is great, but it's also okay to rebalance and lock in some of those gains into your bonds and into cash. The fourth is how big of a safety net do you want? And one thing I always encourage people to do if you're nervous is build up your safety net. Give yourself the runway so that you don't panic when the markets go down and don't end up with a problem if if there are surprises none of us want more inflation, job losses, economy slowing down. We're currently right now if I were an if I am an equity investor and my biggest nervousness right now is the concentration in these big seven stocks and the AI situation. And so what I I think David has mentioned, Alexis has mentioned be very thoughtful of do I own the things that have not participated because I do recall in 2000 I was in the business for maybe eight years when that hit after the 1999 uh rally in internet stocks. I do recall that if you owned value stocks at that time, the Dow as an example, the Dow 30 stocks and did not own the NASDAQ, you did quite well. You had a positive year in the year 2000, even though the NASDAQ fell more than 50%. And so, I think again, unfortunately, the S&P is now so heavily weighted to these seven stocks that you might even think about getting into an S&P equal weighted so you don't have the heavy weighting to those seven stocks. So there are things you can do that are not bets on the market. They're just prudent risk management that I think again the market loves to climb a wall of worry. So as long as we're all talking about something going down, it's probably going to keep going up. But I do think again prudent, thoughtful ways of ensuring that your risk profile is in line with what you can stand if the markets go down. because I do think for September and October, it would not surprise me if we had a a rocky patch in here. And you want to be you don't want to be shifting in and out when the markets are making all kinds of crazy moves. >> Well, speaking of fall coming up, September, October, we are on the verge of a three-day weekend. Even though we'll we won't have anything on Monday because it's Labor Day. It'll be a shorter week, but there's no shortage of important information. So David, we have the ISM manufacturing and services coming out. What will you be watching? >> Yeah, I mean clearly we're we're it will be another data point to uh give some insight into just the direction of the economy. Um and you know we also have to couple that with just how that may inform the Fed which we discussed earlier with the September meeting coming up. So it will be it will be relevant. Um and again to the extent that there is some some additional softening it could start the process of some of the rotation that we've talked about but we may need multiple data points for that to really take hold. But but it will be a first step. >> Great. And next week we'll have employment numbers. ADP will be releasing on Thursday instead of Wednesday in September, but BLS will come out as on Friday as usual. Alexis, how do you see a soft or strong report influencing or positioning in equities versus alternatives? >> Yeah. So, similar to David's commentary, you know, it'll be another data point. Um, and if we do see, you know, continued softening, that could accelerate the case for rate cuts, even though it looks, you know, mo most likely that the Fed will cut in September. Um, but more broadly will probably reinforce concerns around a cooling economy. um and that you know if we get multiple data points in that direction ultimately maybe we do see um a rotation and flows into more defensive sectors as we talked about before like healthcare and utilities um or safe havens like gold as people you know join the more of the riskoff party. >> That's right. And we do have David um we also have the US trade deficit deficit coming out in July. You know how is the shifting US trade balance factor into your risk for health care companies? And Joe, please jump in on this one as well. >> Yeah, it's it's not as much of a a a factor for health care as you would expect as it is for other sectors. I mean there there are certain industries within healthcare that have zero exposure. the healthcare services complex for example pharma and and medtech h can have as much as 40% of their revenues um exposed to uh outside the US but we kind of know for the most part where most of the geographic uh tariffs are likely to to shake out um but who knows there's but uh it could always change it's the sectoral tariff for pharma that's that's the key unknown at this point And we we're we're expecting to get final clarity on that in in the near term. >> But but again, the considerations there are not driven by trade deficits, but there there are other factors at play. >> Look, we've we've had we've I can't recall a time where we've had so much change in the e economic balance around the world and how we're all operating. China was the original enemy in the financial sense. Now India has more extreme tariffs than China does and they've always been a fairly friendly nation. A lot of companies have moved uh manufacturing from China, moved it to India and Vietnam and they're not getting the kind of benefits to working with friendly nations that they would have liked. I think this is an interesting time honestly. Then you add the overlay of AI. The truth is that US companies are incredibly nimble and do incredibly well adjusting to what happens. That doesn't mean that consumers don't suffer as well. So, one of the interesting things is that the worse the economy does, the higher the likelihood of interest rates being dropped and therefore the likelyhood of stocks going up. So, you never really know how the market's going to react. I don't know that the trade imbalance is as important as what happens with the dollar because again if the dollar goes down imports become even more expensive and you add tariffs they become even more expensive all of which are inflationary for US consumers. So I again I don't think we've seen the pull through costs yet to the consumer of tariffs. I think the Fed that's why they're playing it slow with interest rates but we'll see. And again we have to remember home prices are not driven by short-term rates. They're driven by what happens with the tenure which has been stubbornly high. So I think it's going to be an interesting week. I think the first week back, everyone back from the summer vacation, everyone having watched football all weekend. I think next week's going to be very telling if we're going to have a tough September and October and this is seasonally a relatively challenging time. And so we'll see. Are we going to run into year end or are people going to lock in their gains and say we've done great. Let's not let's not lose it. Let's not lose any money going into the year end. So again, this can be a challenging period. The end of the first administration, the first year from September to June, it's historically uh it can be a difficult time. So let's hope that's not the case because we all would rather have the market going up. But in the meantime, make sure that you're balanced appropriately uh for whatever may come. >> Yeah. In the meantime, make sure that you have a good three-day weekend. Right. >> Exactly. Joe, what are you doing over the three-day weekend? >> I have a beach volleyball tournament that I'm very excited about. It's a Kolkata and I will that's on Sunday. So, I get to spend Saturday watching more football than any of my girls want to hear, but I'm excited for it. >> And which team are you cheering for? >> Well, I went to Cal, so I naturally go there, but they always break my heart. So, um I I I can't tell you who I'm rooting to lose because I don't want to make any enemies, but I I usually just I'm actually really excited to see uh Manning's I guess nephew play just because there's so much hype. So, I'm just interested to see and I was just there at the Ohio State. So, that's the game I'm most excited to watch and just as a fan, I don't really have a rooting interest. >> Wonderful. >> I didn't say that. Buckeye. I didn't say that. Alexis, what are you doing? >> Not much. I'm looking forward to taking it easy. Maybe playing some golf, enjoying the lack of humidity here in New Jersey. So, not much, but >> And David, >> uh, yeah, we're we're laying Well, sort of. We, my wife and I will be hosting our young adult children's party. So, uh, let's hope they don't make too much of a mess. >> Oh, good. Well, we are actually going to Wine Country. our original place we were supposed to go, you know, there's a huge fire. It's called the Picket Fire here in Northern California, which has impacted one of my favorite places called Silverado Trail in um Napa. And so my husband and I uh quickly made a reroute, a detour to find wine in a different part of California. So we're still excited about that. >> Terry, we won't tell anyone how you like your red wine. >> No, I can't I can't dare tell people right here. art little secret. So, our our viewers will keep coming back if they don't understand how I drink wine. So, that'll be good. Well, I just want to say thank you to Joe, David, and Alexis. This has been a great show. I know our viewers are very grateful for your expertise and your guidance as we go. >> And enjoy your Labor Day. Celebrate the hard work you've done to get where you are, no matter who you are and what you do. And thanks for listening. >> Yeah. Thank you everyone. Have a great week. >> Thanks everyone. >> Thanks.