December 2, 2024 • 24 mins
Emily Roland, Chief Investment Strategist
Emily is responsible for developing and delivering timely market and economic insight to financial advisors and institutional investors across the country. She has been featured on CNBC and Bloomberg TV, and is quoted frequently in the financial press, including the Wall Street Journal, Barron’s, and the Associated Press. She is a highly rated keynote speaker at a variety of industry conferences and events.
Emily leads the development of John Hancock Investments’ flagship quarterly market outlook publication, Market Intelligence. In doing so, she oversees the firm’s investment committee, which sets the view by marrying insight from the firm’s global network of asset managers, independent research firms, broker-dealers, and banks with top-down fundamental and macro analysis.
In this episode of Paramount Wealth Perspectives, host Chris Coyle is joined by Scott Tremlett, Chief Investment Officer at Paramount Associates, and special guest Emily Roland, Chief Investment Strategist at John Hancock. Together, they discuss the economic and market implications of the new administration, exploring potential impacts on U.S. stocks, inflation, and yields. Emily shares insights on emerging market opportunities, particularly India, the importance of relative earnings growth, and why bonds might offer compelling value heading into 2025.
The episode also highlights key trends from the third-quarter earnings season, the resilience of the U.S. consumer, and potential risks associated with elevated market valuations. Emily provides actionable strategies for navigating today’s markets, from emphasizing mid-cap stocks and infrastructure to leveraging risk-mitigating alternative investments.
Tune in to gain valuable insights for managing portfolios in a dynamic and evolving economic environment!
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
Intro song game on.
Hello, everyone.
Welcome to paramount wealthperspectives.
Your go-to podcast for thelatest updates on global markets
and current economic events.
(00:20):
This is your host, Chris Coyle.
Each week we strive to bring youexpert analysis on market
trends, economic shifts.
And key financial developmentsfrom around the world.
Whether you're an investorbusiness leader.
Or simply curious about theglobal economy.
Our podcast is here to keep youinformed and ahead of the curve.
(00:41):
Now let's dive into the marketsand explore what shaping the
world of finance today.
Here with us today.
We have Scott Tremlett chiefinvestment officer and managing
partner.
At paramount associates, wealthmanagement.
And today we are especiallyexcited to have our first guest
speaker joining us.
Emily Roland from John Hancock.
Emily is responsible fordeveloping and delivering timely
(01:03):
market and economic insight tofinancial advisors.
And institutional investorsacross the country.
She has been featured on CNBCand Bloomberg TV.
And as quoted frequently in thefinancial press, including the
wall street journal barons andthe associated press.
She is a highly rated keynotespeaker at a variety of industry
conferences and events.
(01:25):
Scott and Emily recorded thislast week.
Now I'm excited to share withyou what they have to say.
So let's get started.
Audio Only - All Partic (01:33):
Excited to have Emily Roland here
joining us from John Hancock,and I think we'll just jump into
the questions right now.
I guess the first question is.
What's been asked a lot byinvestors and a lot by the
general public is talking aboutthe new administration and what
does the new administrationreally mean for the U S stock
(01:54):
market, inflation yields, thingsof that nature.
Maybe you can give us some colorcommentary on that.
Yeah, sure, Scott.
So great question.
There's certainly been a lothappening from a political
perspective that's been drivingprocess of returns in markets.
You know, some of the sort ofpost election winners have been
(02:14):
areas like U.
S.
Credit.
We've seen equities so seeminglyhitting new all time highs every
day.
I think the idea.
Is that there are, you know,some potential and by the way,
I've never used the wordpotential.
I don't think more in my careerbecause we don't know how some
of these policies are going toplay out, but there are, you
know, potential pro cyclicalpolicies at play here, lower
(02:36):
taxes or something that's beenpart of the campaign.
So we've seen those areas of themarket do well.
Pretty remarkable performanceout of areas like regional
banks, which are a big part ofthe small cap indices.
So regional banks up over almost20 percent since election day
here.
The idea is that there may besome deregulation or
(02:58):
deregulatory policies in thepipeline here.
Um, lower quality andspeculative companies also
getting a bid from things like,you know, unprofitable growth
companies to crypto currency tocrypto related assets.
So we've seen almost this sortof speculative frenzy building
across markets since theelection.
(03:19):
Um, and then finally, you'veseen, areas like the dollar
really outperforming.
So we are.
In an environment now wherethere's better relative economic
growth in the United States, wehave higher interest rates and
other sovereign nations aroundthe world.
And that's bringing a flood ofdollars onto our shores, a
couple of quote unquote, losersthat have been emerging sort of
(03:41):
just prior to the election andafter.
Bonds, I would say, is theprimary one.
We saw just a massive backup inbond yields.
Um, really, a lot of that tookplace before the election is
Trump's odds of winning improvedin the betting markets.
And you saw the really the ideathat investors putting forward
is that.
You know, tariffs couldpotentially be inflationary.
(04:03):
Tighter immigration policy couldbe inflationary.
And again, more pro cyclicalpolicies could be accretive to
growth in the United States.
So all of those things, pushingyields higher.
They have started to movesideways a bit here since the
election again.
It was a really broad based,very sharp move higher.
And then non U.
(04:24):
S.
equities have really gottencrushed here versus their U.
S.
counterparts on sort of America.
1st policies, the potential forhigher tariffs again.
We have to point out that a lotof this is.
Speculative.
We don't know whether thesepolicies are a, you know,
negotiating starting point.
(04:45):
If there's something moresubstantive here, there's a lot
still to be found, but themarkets are telling you sort of
how they're thinking about.
Potential policies under thisnew administration.
I will say that markets do havemuscle memory.
We actually have a playbook forthis in 2016 and 2017, which of
(05:08):
course was the last time we sawa Trump presidency.
And we did see similar movesacross currency markets, across
unprofitable companies, regionalbanks, small cap equities.
Um, a lot of those trades didhappen very quickly.
They were priced in the marketsquickly.
And then they faded from here.
So I know one thing you weregoing to ask or we were going to
(05:29):
chat about was, you know, whatdoes this mean for investors
longer term?
I don't think it's thatimportant.
Um, I think investors are goingto come back to fundamentals.
They're going to come back tothe macro.
But for now, you know, some ofthese trades may be in sort of
the 6th or 7th inning if youlook back at the performance
that we saw in 2016.
(05:50):
So for investors that arelooking to get more tactical
over the next quarter or two,there may be something there,
but we do think that investorsshould and will refocus on where
the best relative economicgrowth is, where the best
relative earnings growth is, youknow, as we head into the bulk
of 2025.
Yeah, and I, I've kind of agreedwith a lot of that I've been
(06:11):
asked a lot about this,obviously, the last few months
and my answer is always, well,the market could go up market
could go down.
It's just going to go back totrend.
Um, but is there any meat perse?
Financials could be a winnerhere, is there any meat that you
see with policy administration,things of that nature that could
(06:33):
actually push certain areas ofthe U.
S.
stock market?
Yeah, I mean, there potentiallyis.
But let's take financials for anexample.
Very similar again in 2016.
And there was deregulation forfinancials.
But during the Trumpadministration, frankly, it was
not a great part of the marketto own.
Simply because interest rateswere low, and that's negative
(06:56):
for banks, net interest margins,and the earnings trends weren't
there.
Frankly, the best places toinvest during the first Trump
administration was tech stocksand growth because the earnings
trends were better there.
And that's the same thing thatwe're seeing today.
In fact, if you look at the top10 performing sectors under the
Trump administration, our areasof the market indices, is Not
(07:19):
only were technology stocks wayup there, but so were Chinese
stocks, even though we appliedall of these tariffs to China
simply because we were in aperiod of global synchronized
growth, which means countriesaround the world.
We're all growing at a quick,fast pace together.
Those environments tend tobenefit the most cyclical areas
of the world.
(07:39):
And China, of course, is theposter child for cyclicality.
Likewise, if you looked underthe Biden administration, the
best sector to own by far hasbeen energy.
It's exactly the opposite ofwhat you would have thought.
Based on Biden administrationpolicies around green energy and
poor treatment of fossil fuelcompanies.
(08:00):
So trying to use politics as aninput to making these decisions
is fraught with landmines.
Again, we would be looking at atrelative earnings trends, for
example, large cap stocks rightnow.
Are seeing positive earningsrevisions.
Earnings were up about 6 percentfor the S and P 500 this
quarter.
(08:20):
Earnings for small cap stocksare negative negative 7 percent
this quarter.
Analysts are penciling in atotal of negative 4 percent
earnings growth for small capstocks in 2024.
The earnings trends just aren'tthere.
So we want to try to gravitateto parts of the market where
we're seeing Those profitmargins stable, great return on
(08:42):
equity, lots of cash, companiesthat can really navigate an
environment in which corporateprofits are coming back down to
sort of following gravity backdown from very advanced levels
during the height of thepandemic and over the last few
years.
Yeah.
And then I'm not a big bank guy.
I've never been a big bank guy.
(09:03):
My financial exposure is reallylimited to asset managers right
now and insurance firms.
There has been some momentumthere.
And I did read something thatyou said a few days ago, take
profits where you can.
I think that a lot of peoplebecome collectors of
investments.
And they never sell things andthey from time to time.
Well, you had mentioned China.
(09:24):
I think that's probably a goodleeway over to international
markets.
I have my own rankings.
I am a big fan of India havebeen for a while.
I like more of their small midcap area.
I think there's just more tochoose from on the industrial
side.
Specifically you talked a littlebit about China, but there's
other.
Countries regions that are goingto be affected by potential,
(09:46):
tariffs, you know, what mightmean stuff for Europe might mean
things for Canada.
Um, maybe you could touch onsome of that.
Yeah, sure.
So, I mean, markets arecertainly telling you that and,
you know, you've seen like theCanadian dollar taking a beating
today based on something thatTrump posted on, you know, his
social media channel.
So it's really hard to kind ofdiscern the signal from the
(10:08):
noise right now.
Um, so we would be reallycareful trying to kind of make
guesses about how tariffs aregoing to impact different parts
of the world.
Frankly, we don't know yet.
When we look more structurallyat these areas, China's got
problems.
Their property sector is very,very challenged.
Now there's demographic issuesthere.
They're moving away fromcapitalism, which is a very
(10:30):
business friendly.
Political regime.
So we want to be mindful ofChina.
The earnings trends aren'tthere.
Now, India certainly to yourpoint is a bright spot within
emerging market equities from anearnings perspective.
One way to think about it interms of portfolios though, is
yes, we can talk about India.
We can be overweight Indiawithin emerging markets.
(10:50):
We have to be mindful of thefact that, you know, the United
States is really veryconcentrated right now.
We need to think about howpowerful the impact of the
earnings growth and the returnsand the multiple expenses.
So we're modestly underweightemerging market equities.
(11:11):
We modestly underweight China.
India would be a bright spot.
But again, that the power thatwe've seen out of the US mega
cap tech space is kind of hardto stop here.
obviously, there's momentumright now and some of those
names that we're all makingmoney on no matter what we're
invested in really.
But, you know, if we looking atthe underlying aspects for
(11:32):
inflation.
growth is by 1 modelproductivity plus immigration
per se, or new jobs, and if weshut down, new people coming
into the country, just talkingabout.
Economically don't have to comefrom somewhere.
So I do kind of feel likethere's going to be some pain
(11:52):
felt somewhere along the line.
If it's something drastic onthat realm, and that could push
up wages.
Is that how you see it?
Or, what are you thinking?
Yeah, actually, if we didn'thave immigration, our monthly
jobs, growth numbers would benegative.
And while that could have amodest impact on on wages, it's
(12:13):
actually growth negative, whichis disinflationary.
So, immigration has helped theeconomy grow at an above trend
pace that could reverse if we,if we have much tighter
immigration policies, some ofthe other things that are
driving.
Disinflation in our view areactually wage growth is one.
So we've gone from a high ofabout 6 percent average hourly
(12:36):
earnings a couple of years ago,down to four and slowing.
We're seeing corporateprofitability come under
pressure that ultimately shouldpush wage growth even lower from
here.
That's disinflationary.
The housing market, um, we'reseeing, some changes there,
particularly in those sort ofCOVID hotspots that people move
to, think about Texas andFlorida, they were very much
(12:59):
overbuilt.
And now inventories are up upnationally about 25%.
Year over year, remember allthose people that moved to
Texas.
Now they've got to go back totheir Manhattan and their
California company that theywork for because they want folks
to be in office.
So we're seeing that contributeeventually to some disinflation
(13:20):
within the housing or theshelter component of CPI.
And then finally, commodityprices.
If you're expecting some kindof.
significant reacceleration andinflation that has to come hand
in hand with higher oil prices,higher energy prices, and we're
just not seeing it.
They're just moving sidewaysright now.
Um, and I think, you know,that's notable even during a
(13:42):
time where we've had some flareups in geopolitical issues over
the last few years.
Few weeks here, we just haven'tseen oil prices go up.
So in our view, all of thosethings are disinflationary.
And the great, the great newsabout that, even though it
doesn't sound that great, thatwage growth is slowing, is that
bonds are offering a lot ofvalue here.
Given the backup and yields thatwe saw, you know, we were
(14:03):
approaching four 50 on the 10year treasury briefly.
That's come down a bit.
But we still think that theaggregate bond index around four
and a half to 5 percent offers alot of value right now.
The bond market is just somyopically focused on these
potential political outcomesthat it's not sniffing out all
of these pretty significantdisinflationary forces that are
(14:27):
at play.
Remember, inflation was yourworst enemy as a bond investor.
And in our view, it's actuallygoing to start to become your
best friend as we go into 2025.
Well, that's interesting.
I hadn't thought about it fromthat side.
I appreciate you giving you thatcommentary.
So we're looking at inflationcoming down, potentially over
(14:47):
the next year.
What does that mean for the Fed?
What do you feel about, the Fedand their path?
Yeah, I mean, December is goingto be really interesting.
I don't think it's a done dealfor the Fed.
You know, the things they haveon their side are that, you
know, they've got some, thedisinflation traction that we
already talked about.
(15:07):
And then they've got, you know,the unemployment rates creeping
upward 4.
2 percent and they've said theydon't welcome any further cracks
in the labor market.
So we know that.
So as far as the Fed's dualmandate goes, Um, you know, I
think they've probably got theroom to cut given inflation's
low enough, that they can dothat.
You know, the challenge, ofcourse, is that we have seen
(15:29):
this modest reacceleration ineconomic growth and in animal
spirits.
The Fed's job is kind of beingdone for it in terms of keeping
the economy afloat right now,given the fact that we've seen
not only some upside surprisesin the economic data, I mean,
the U.
S.
services side is on fire.
We got a 57 services side PMI.
(15:51):
And for those that don't followPMIs, I get it.
There are their monthly businesssurveys that tell us about the
health of the underlying economyand anything over 50 is
expansionary and 57 is quiteextraordinary.
The consumer is doing well.
There's a massive wealth effectgoing on.
The S and P five hundreds uproughly 25 percent year to date
(16:11):
for the second year in a row.
Um, and that's been great forinvestors, portfolios, the jobs
market's good.
So a lot of things arehappening, are good in terms of
the economy right now, which Ithink sort of limits the feds
flexibility here.
Um, I do think they'd like tocut, but they also, you know,
you heard chair Powell last weeksort of address.
(16:34):
This potential for more, morestimulus, more pro more pro
cyclical policies.
In 2016, the Fed did pause.
If they pause, I think thatwould be the equivalent of a
hike.
Uh, the bond market is tellingyou that it's about a 60 percent
chance of a cut, 40 percentchance of a hold.
We still have another nonfarmpayrolls report.
(16:56):
We have another CPI report.
We have more informationprobably coming out about how
these policies might look.
So there's a lot of data for theFed to contend with.
But I think, you know, it'scertainly not a lock at this
point, 3, 3 plus weeks out here.
Yeah, I think I kind of agree onthat, too.
I think it's all data dependent.
I do appreciate the fact thatthey're willing to be data
(17:19):
dependent and not just stickingto their guns because they say
so.
I appreciate that very much tobe.
Yeah.
I guess, tariffs are tariffs.
We will see how that all works.
We talked about the wage and jobmarket, I guess, where are the
cracks?
You see, because when I'mreading about earnings and I'm
(17:40):
seeing, the averages of beatsand I'm seeing that your revenue
growth and everything is kind ofbelow 5 year, 10 year averages,
and I think, obviously earningsdon't completely follow the
revenues and sales, but there issome sort of equation to that.
What do you think about earningsgoing forward?
Yeah, it's a good question.
(18:01):
You know, we're heading, we justhad a pretty decent earning
season again, about 6 percentearnings growth for the S& P
500, which was a little bitbetter than expected, but the
bar was really low.
And that's the last time we'regoing to have a low bar.
The expectation was for 3, 4percent earnings growth.
From here.
We're just starting a series ofquarters where analysts are
(18:22):
penciling in double digitearnings growth.
So the bars just gotten a lothigher.
I certainly think that there'scompanies that can clear the
bar.
we're emphasizing areas like, U.
S.
Large cap stocks, U.
S.
Mid cap stocks, which are seeingsome pretty robust earnings
trends benefiting from anoverweight to the industrial
(18:42):
sector.
I know you mentioned earlier,That's a favorite of yours.
We see that benefiting from thefiscal spending that's playing
out the manufacturingrenaissance that we're seeing in
the United States.
So I certainly think there'spockets of the market that can.
That can clear that bar.
You know, I think the biggestchallenge right now in terms of
risks into 2025 is that theconsensus is so one sided Lee
(19:06):
positive, you know, that thatcorporate earnings are going to
continue to soar.
See double digit growth thatstock prices are going to
continue to go up.
The growth is going to modestlyreaccelerate that inflation is
going to come down.
It's like that in this utopiathat you're seeing and cross
investors is going to continue.
That might all happen.
(19:26):
And I hope it does.
Hope's not a great investmentstrategy, by the way.
I hope it does.
But the problem is that marketsare already priced for it.
The S& P 500 is trading at 22times forward earnings, 27 times
trailing earnings.
This is about as expensive asstocks have been over the course
of the last decade or two.
(19:47):
So we want to be mindful thereas markets may be priced for
perfection.
Bonds, on the other hand, Idon't think are priced for
perfection.
Um, again, with the focus onthese potential political
scenarios.
We've seen yields back up andthey represent a really
attractive entry point rightnow.
So we would look at areas liketreasuries, mortgage backed
(20:08):
securities, investment grade,corporate bonds.
You don't even need to dip downinto credit anymore to generate
these yields that are close to20 year highs.
So we would be leaning into anarea.
Of the market that, frankly,hasn't done well, um, that
offers a lot of value here.
That's probably not priced forthe economic reality that we're
(20:29):
heading into into next year,which is a modest contraction
and economic activity.
So that's the way we think aboutthis.
Where is the best relative valuethat you can find across
markets?
And right now, we think thatbonds can probably do some more
heavy lifting in portfolios intonext year.
Yeah, and I think thatdiversification is key right
(20:51):
now, just to not get caught uptoo much in the momentum because
it can turn on you quickly.
And if everybody owns the samestuff, and they're all selling
at the same time, it may notfeel very well when you're going
down.
Exactly.
How about alternative space?
I know you have to jump off herein a couple of minutes, but any
thoughts on alternatives, andhow they kind of fit going into
(21:13):
2025.
Yeah, sure.
So we, we sort of bucketalternatives into a couple of
different pieces.
Um, you know, 1 would be sort ofcapital, more sort of capital
appreciation type strategies,riskier ones and then risk
mitigating strategies.
So areas of alternatives thatcan provide a volatility buffer,
(21:35):
a dampener.
And really a diversificationbenefit and we're favoring risk
mitigation strategies right now,you know, sort of given where we
see the economic environmentgoing into next year.
So an example would be, we'vealready talked about.
Things like infrastructure.
I think, you know, looking atprivate credit versus private
(21:55):
equity makes a lot of sense inportfolios.
Now, given the income that'savailable there, embracing a
multi alternative strategythat's going to sort of help
smooth the ride out.
Within an alternatives bucket, Ithink would all be sort of good
potential ideas as we look intonext year to help really buffer
some of the potential risk aftera couple really, really great
(22:17):
years across risk assets.
Well, thank you.
Thank you.
I know you have to jump over toBloomberg anything you want to
leave us with here.
You're 1 of my favorites.
I appreciate you taking the timewith us today.
Anything you want to leave uswith.
Oh, well, thanks for sayingthat.
You know, again, I think it'sjust about kind of managing
emotions, which it always is.
(22:38):
And you and the team are sogreat at helping your clients do
that.
It's so hard during times likethis, you know, not only with
the election, but, but alsowith, kind of the, the
excitement, I think that'spermeating markets right now.
so, continue to think about, Ithink, pruning risk, trimming
into strength, looking toredeploy assets into areas that
are, that offer, betterfundamentals, mid cap stocks in
(23:01):
the United States, um, we didn'ttalk much about, but
infrastructure, more defensiveareas like utilities, and then
just taking advantage of thebackup and bond yields that
we've seen, I think, are allpotential.
You know, great ideas forportfolios into next year.
But I know you continue to do agreat job, you know, managing
risk and finding opportunitieswith your clients.
So best of luck to you and theteam into next year.
(23:23):
And I'm sure we'll be in touch.
Thank you, Emily.
Appreciate it very much.
Thank you to both Scott andEmily for the informative update
on what they see coming in 2025.
We are incredibly grateful toEmily Roland for sharing her
knowledge with our listeners.
And we eagerly anticipate herreturn to our podcast next year.
Please remember that the viewsand opinions expressed by guest
(23:44):
speakers are solely their own.
And do not necessarily reflectthe views of paramount
associates, wealth management.
The information provided byexternal speakers is for
informational purposes only.
And is not intended assolicitation or recommendation
for any particular investmentstrategy or any product or
service.
(24:04):
For now.
Stay informed.
Stay ahead and join us nextweek.
For more key updates shaping theglobal economy.
Thank you for tuning intoparamount wealth perspectives.
We hope you all have a fantasticweek.
Intro song game on.
Hello, everyone.
Welcome to paramount wealthperspectives.
Your go-to podcast for thelatest updates on global markets
and current economic events.
(00:20):
This is your host, Chris Coyle.
Each week we strive to bring youexpert analysis on market
trends, economic shifts.
And key financial developmentsfrom around the world.
Whether you're an investorbusiness leader.
Or simply curious about theglobal economy.
Our podcast is here to keep youinformed and ahead of the curve.
(00:41):
Now let's dive into the marketsand explore what shaping the
world of finance today.
Here with us today.
We have Scott Tremlett chiefinvestment officer and managing
partner.
At paramount associates, wealthmanagement.
And today we are especiallyexcited to have our first guest
speaker joining us.
Emily Roland from John Hancock.
Emily is responsible fordeveloping and delivering timely
(01:03):
market and economic insight tofinancial advisors.
And institutional investorsacross the country.
She has been featured on CNBCand Bloomberg TV.
And as quoted frequently in thefinancial press, including the
wall street journal barons andthe associated press.
She is a highly rated keynotespeaker at a variety of industry
conferences and events.
(01:25):
Scott and Emily recorded thislast week.
Now I'm excited to share withyou what they have to say.
So let's get started.
Audio Only - All Partic (01:33):
Excited to have Emily Roland here
joining us from John Hancock,and I think we'll just jump into
the questions right now.
I guess the first question is.
What's been asked a lot byinvestors and a lot by the
general public is talking aboutthe new administration and what
does the new administrationreally mean for the U S stock
(01:54):
market, inflation yields, thingsof that nature.
Maybe you can give us some colorcommentary on that.
Yeah, sure, Scott.
So great question.
There's certainly been a lothappening from a political
perspective that's been drivingprocess of returns in markets.
You know, some of the sort ofpost election winners have been
(02:14):
areas like U.
S.
Credit.
We've seen equities so seeminglyhitting new all time highs every
day.
I think the idea.
Is that there are, you know,some potential and by the way,
I've never used the wordpotential.
I don't think more in my careerbecause we don't know how some
of these policies are going toplay out, but there are, you
know, potential pro cyclicalpolicies at play here, lower
(02:36):
taxes or something that's beenpart of the campaign.
So we've seen those areas of themarket do well.
Pretty remarkable performanceout of areas like regional
banks, which are a big part ofthe small cap indices.
So regional banks up over almost20 percent since election day
here.
The idea is that there may besome deregulation or
(02:58):
deregulatory policies in thepipeline here.
Um, lower quality andspeculative companies also
getting a bid from things like,you know, unprofitable growth
companies to crypto currency tocrypto related assets.
So we've seen almost this sortof speculative frenzy building
across markets since theelection.
(03:19):
Um, and then finally, you'veseen, areas like the dollar
really outperforming.
So we are.
In an environment now wherethere's better relative economic
growth in the United States, wehave higher interest rates and
other sovereign nations aroundthe world.
And that's bringing a flood ofdollars onto our shores, a
couple of quote unquote, losersthat have been emerging sort of
(03:41):
just prior to the election andafter.
Bonds, I would say, is theprimary one.
We saw just a massive backup inbond yields.
Um, really, a lot of that tookplace before the election is
Trump's odds of winning improvedin the betting markets.
And you saw the really the ideathat investors putting forward
is that.
You know, tariffs couldpotentially be inflationary.
(04:03):
Tighter immigration policy couldbe inflationary.
And again, more pro cyclicalpolicies could be accretive to
growth in the United States.
So all of those things, pushingyields higher.
They have started to movesideways a bit here since the
election again.
It was a really broad based,very sharp move higher.
And then non U.
(04:24):
S.
equities have really gottencrushed here versus their U.
S.
counterparts on sort of America.
1st policies, the potential forhigher tariffs again.
We have to point out that a lotof this is.
Speculative.
We don't know whether thesepolicies are a, you know,
negotiating starting point.
(04:45):
If there's something moresubstantive here, there's a lot
still to be found, but themarkets are telling you sort of
how they're thinking about.
Potential policies under thisnew administration.
I will say that markets do havemuscle memory.
We actually have a playbook forthis in 2016 and 2017, which of
(05:08):
course was the last time we sawa Trump presidency.
And we did see similar movesacross currency markets, across
unprofitable companies, regionalbanks, small cap equities.
Um, a lot of those trades didhappen very quickly.
They were priced in the marketsquickly.
And then they faded from here.
So I know one thing you weregoing to ask or we were going to
(05:29):
chat about was, you know, whatdoes this mean for investors
longer term?
I don't think it's thatimportant.
Um, I think investors are goingto come back to fundamentals.
They're going to come back tothe macro.
But for now, you know, some ofthese trades may be in sort of
the 6th or 7th inning if youlook back at the performance
that we saw in 2016.
(05:50):
So for investors that arelooking to get more tactical
over the next quarter or two,there may be something there,
but we do think that investorsshould and will refocus on where
the best relative economicgrowth is, where the best
relative earnings growth is, youknow, as we head into the bulk
of 2025.
Yeah, and I, I've kind of agreedwith a lot of that I've been
(06:11):
asked a lot about this,obviously, the last few months
and my answer is always, well,the market could go up market
could go down.
It's just going to go back totrend.
Um, but is there any meat perse?
Financials could be a winnerhere, is there any meat that you
see with policy administration,things of that nature that could
(06:33):
actually push certain areas ofthe U.
S.
stock market?
Yeah, I mean, there potentiallyis.
But let's take financials for anexample.
Very similar again in 2016.
And there was deregulation forfinancials.
But during the Trumpadministration, frankly, it was
not a great part of the marketto own.
Simply because interest rateswere low, and that's negative
(06:56):
for banks, net interest margins,and the earnings trends weren't
there.
Frankly, the best places toinvest during the first Trump
administration was tech stocksand growth because the earnings
trends were better there.
And that's the same thing thatwe're seeing today.
In fact, if you look at the top10 performing sectors under the
Trump administration, our areasof the market indices, is Not
(07:19):
only were technology stocks wayup there, but so were Chinese
stocks, even though we appliedall of these tariffs to China
simply because we were in aperiod of global synchronized
growth, which means countriesaround the world.
We're all growing at a quick,fast pace together.
Those environments tend tobenefit the most cyclical areas
of the world.
(07:39):
And China, of course, is theposter child for cyclicality.
Likewise, if you looked underthe Biden administration, the
best sector to own by far hasbeen energy.
It's exactly the opposite ofwhat you would have thought.
Based on Biden administrationpolicies around green energy and
poor treatment of fossil fuelcompanies.
(08:00):
So trying to use politics as aninput to making these decisions
is fraught with landmines.
Again, we would be looking at atrelative earnings trends, for
example, large cap stocks rightnow.
Are seeing positive earningsrevisions.
Earnings were up about 6 percentfor the S and P 500 this
quarter.
(08:20):
Earnings for small cap stocksare negative negative 7 percent
this quarter.
Analysts are penciling in atotal of negative 4 percent
earnings growth for small capstocks in 2024.
The earnings trends just aren'tthere.
So we want to try to gravitateto parts of the market where
we're seeing Those profitmargins stable, great return on
(08:42):
equity, lots of cash, companiesthat can really navigate an
environment in which corporateprofits are coming back down to
sort of following gravity backdown from very advanced levels
during the height of thepandemic and over the last few
years.
Yeah.
And then I'm not a big bank guy.
I've never been a big bank guy.
(09:03):
My financial exposure is reallylimited to asset managers right
now and insurance firms.
There has been some momentumthere.
And I did read something thatyou said a few days ago, take
profits where you can.
I think that a lot of peoplebecome collectors of
investments.
And they never sell things andthey from time to time.
Well, you had mentioned China.
(09:24):
I think that's probably a goodleeway over to international
markets.
I have my own rankings.
I am a big fan of India havebeen for a while.
I like more of their small midcap area.
I think there's just more tochoose from on the industrial
side.
Specifically you talked a littlebit about China, but there's
other.
Countries regions that are goingto be affected by potential,
(09:46):
tariffs, you know, what mightmean stuff for Europe might mean
things for Canada.
Um, maybe you could touch onsome of that.
Yeah, sure.
So, I mean, markets arecertainly telling you that and,
you know, you've seen like theCanadian dollar taking a beating
today based on something thatTrump posted on, you know, his
social media channel.
So it's really hard to kind ofdiscern the signal from the
(10:08):
noise right now.
Um, so we would be reallycareful trying to kind of make
guesses about how tariffs aregoing to impact different parts
of the world.
Frankly, we don't know yet.
When we look more structurallyat these areas, China's got
problems.
Their property sector is very,very challenged.
Now there's demographic issuesthere.
They're moving away fromcapitalism, which is a very
(10:30):
business friendly.
Political regime.
So we want to be mindful ofChina.
The earnings trends aren'tthere.
Now, India certainly to yourpoint is a bright spot within
emerging market equities from anearnings perspective.
One way to think about it interms of portfolios though, is
yes, we can talk about India.
We can be overweight Indiawithin emerging markets.
(10:50):
We have to be mindful of thefact that, you know, the United
States is really veryconcentrated right now.
We need to think about howpowerful the impact of the
earnings growth and the returnsand the multiple expenses.
So we're modestly underweightemerging market equities.
(11:11):
We modestly underweight China.
India would be a bright spot.
But again, that the power thatwe've seen out of the US mega
cap tech space is kind of hardto stop here.
obviously, there's momentumright now and some of those
names that we're all makingmoney on no matter what we're
invested in really.
But, you know, if we looking atthe underlying aspects for
(11:32):
inflation.
growth is by 1 modelproductivity plus immigration
per se, or new jobs, and if weshut down, new people coming
into the country, just talkingabout.
Economically don't have to comefrom somewhere.
So I do kind of feel likethere's going to be some pain
(11:52):
felt somewhere along the line.
If it's something drastic onthat realm, and that could push
up wages.
Is that how you see it?
Or, what are you thinking?
Yeah, actually, if we didn'thave immigration, our monthly
jobs, growth numbers would benegative.
And while that could have amodest impact on on wages, it's
(12:13):
actually growth negative, whichis disinflationary.
So, immigration has helped theeconomy grow at an above trend
pace that could reverse if we,if we have much tighter
immigration policies, some ofthe other things that are
driving.
Disinflation in our view areactually wage growth is one.
So we've gone from a high ofabout 6 percent average hourly
(12:36):
earnings a couple of years ago,down to four and slowing.
We're seeing corporateprofitability come under
pressure that ultimately shouldpush wage growth even lower from
here.
That's disinflationary.
The housing market, um, we'reseeing, some changes there,
particularly in those sort ofCOVID hotspots that people move
to, think about Texas andFlorida, they were very much
(12:59):
overbuilt.
And now inventories are up upnationally about 25%.
Year over year, remember allthose people that moved to
Texas.
Now they've got to go back totheir Manhattan and their
California company that theywork for because they want folks
to be in office.
So we're seeing that contributeeventually to some disinflation
(13:20):
within the housing or theshelter component of CPI.
And then finally, commodityprices.
If you're expecting some kindof.
significant reacceleration andinflation that has to come hand
in hand with higher oil prices,higher energy prices, and we're
just not seeing it.
They're just moving sidewaysright now.
Um, and I think, you know,that's notable even during a
(13:42):
time where we've had some flareups in geopolitical issues over
the last few years.
Few weeks here, we just haven'tseen oil prices go up.
So in our view, all of thosethings are disinflationary.
And the great, the great newsabout that, even though it
doesn't sound that great, thatwage growth is slowing, is that
bonds are offering a lot ofvalue here.
Given the backup and yields thatwe saw, you know, we were
(14:03):
approaching four 50 on the 10year treasury briefly.
That's come down a bit.
But we still think that theaggregate bond index around four
and a half to 5 percent offers alot of value right now.
The bond market is just somyopically focused on these
potential political outcomesthat it's not sniffing out all
of these pretty significantdisinflationary forces that are
(14:27):
at play.
Remember, inflation was yourworst enemy as a bond investor.
And in our view, it's actuallygoing to start to become your
best friend as we go into 2025.
Well, that's interesting.
I hadn't thought about it fromthat side.
I appreciate you giving you thatcommentary.
So we're looking at inflationcoming down, potentially over
(14:47):
the next year.
What does that mean for the Fed?
What do you feel about, the Fedand their path?
Yeah, I mean, December is goingto be really interesting.
I don't think it's a done dealfor the Fed.
You know, the things they haveon their side are that, you
know, they've got some, thedisinflation traction that we
already talked about.
(15:07):
And then they've got, you know,the unemployment rates creeping
upward 4.
2 percent and they've said theydon't welcome any further cracks
in the labor market.
So we know that.
So as far as the Fed's dualmandate goes, Um, you know, I
think they've probably got theroom to cut given inflation's
low enough, that they can dothat.
You know, the challenge, ofcourse, is that we have seen
(15:29):
this modest reacceleration ineconomic growth and in animal
spirits.
The Fed's job is kind of beingdone for it in terms of keeping
the economy afloat right now,given the fact that we've seen
not only some upside surprisesin the economic data, I mean,
the U.
S.
services side is on fire.
We got a 57 services side PMI.
(15:51):
And for those that don't followPMIs, I get it.
There are their monthly businesssurveys that tell us about the
health of the underlying economyand anything over 50 is
expansionary and 57 is quiteextraordinary.
The consumer is doing well.
There's a massive wealth effectgoing on.
The S and P five hundreds uproughly 25 percent year to date
(16:11):
for the second year in a row.
Um, and that's been great forinvestors, portfolios, the jobs
market's good.
So a lot of things arehappening, are good in terms of
the economy right now, which Ithink sort of limits the feds
flexibility here.
Um, I do think they'd like tocut, but they also, you know,
you heard chair Powell last weeksort of address.
(16:34):
This potential for more, morestimulus, more pro more pro
cyclical policies.
In 2016, the Fed did pause.
If they pause, I think thatwould be the equivalent of a
hike.
Uh, the bond market is tellingyou that it's about a 60 percent
chance of a cut, 40 percentchance of a hold.
We still have another nonfarmpayrolls report.
(16:56):
We have another CPI report.
We have more informationprobably coming out about how
these policies might look.
So there's a lot of data for theFed to contend with.
But I think, you know, it'scertainly not a lock at this
point, 3, 3 plus weeks out here.
Yeah, I think I kind of agree onthat, too.
I think it's all data dependent.
I do appreciate the fact thatthey're willing to be data
(17:19):
dependent and not just stickingto their guns because they say
so.
I appreciate that very much tobe.
Yeah.
I guess, tariffs are tariffs.
We will see how that all works.
We talked about the wage and jobmarket, I guess, where are the
cracks?
You see, because when I'mreading about earnings and I'm
(17:40):
seeing, the averages of beatsand I'm seeing that your revenue
growth and everything is kind ofbelow 5 year, 10 year averages,
and I think, obviously earningsdon't completely follow the
revenues and sales, but there issome sort of equation to that.
What do you think about earningsgoing forward?
Yeah, it's a good question.
(18:01):
You know, we're heading, we justhad a pretty decent earning
season again, about 6 percentearnings growth for the S& P
500, which was a little bitbetter than expected, but the
bar was really low.
And that's the last time we'regoing to have a low bar.
The expectation was for 3, 4percent earnings growth.
From here.
We're just starting a series ofquarters where analysts are
(18:22):
penciling in double digitearnings growth.
So the bars just gotten a lothigher.
I certainly think that there'scompanies that can clear the
bar.
we're emphasizing areas like, U.
S.
Large cap stocks, U.
S.
Mid cap stocks, which are seeingsome pretty robust earnings
trends benefiting from anoverweight to the industrial
(18:42):
sector.
I know you mentioned earlier,That's a favorite of yours.
We see that benefiting from thefiscal spending that's playing
out the manufacturingrenaissance that we're seeing in
the United States.
So I certainly think there'spockets of the market that can.
That can clear that bar.
You know, I think the biggestchallenge right now in terms of
risks into 2025 is that theconsensus is so one sided Lee
(19:06):
positive, you know, that thatcorporate earnings are going to
continue to soar.
See double digit growth thatstock prices are going to
continue to go up.
The growth is going to modestlyreaccelerate that inflation is
going to come down.
It's like that in this utopiathat you're seeing and cross
investors is going to continue.
That might all happen.
(19:26):
And I hope it does.
Hope's not a great investmentstrategy, by the way.
I hope it does.
But the problem is that marketsare already priced for it.
The S& P 500 is trading at 22times forward earnings, 27 times
trailing earnings.
This is about as expensive asstocks have been over the course
of the last decade or two.
(19:47):
So we want to be mindful thereas markets may be priced for
perfection.
Bonds, on the other hand, Idon't think are priced for
perfection.
Um, again, with the focus onthese potential political
scenarios.
We've seen yields back up andthey represent a really
attractive entry point rightnow.
So we would look at areas liketreasuries, mortgage backed
(20:08):
securities, investment grade,corporate bonds.
You don't even need to dip downinto credit anymore to generate
these yields that are close to20 year highs.
So we would be leaning into anarea.
Of the market that, frankly,hasn't done well, um, that
offers a lot of value here.
That's probably not priced forthe economic reality that we're
(20:29):
heading into into next year,which is a modest contraction
and economic activity.
So that's the way we think aboutthis.
Where is the best relative valuethat you can find across
markets?
And right now, we think thatbonds can probably do some more
heavy lifting in portfolios intonext year.
Yeah, and I think thatdiversification is key right
(20:51):
now, just to not get caught uptoo much in the momentum because
it can turn on you quickly.
And if everybody owns the samestuff, and they're all selling
at the same time, it may notfeel very well when you're going
down.
Exactly.
How about alternative space?
I know you have to jump off herein a couple of minutes, but any
thoughts on alternatives, andhow they kind of fit going into
(21:13):
2025.
Yeah, sure.
So we, we sort of bucketalternatives into a couple of
different pieces.
Um, you know, 1 would be sort ofcapital, more sort of capital
appreciation type strategies,riskier ones and then risk
mitigating strategies.
So areas of alternatives thatcan provide a volatility buffer,
(21:35):
a dampener.
And really a diversificationbenefit and we're favoring risk
mitigation strategies right now,you know, sort of given where we
see the economic environmentgoing into next year.
So an example would be, we'vealready talked about.
Things like infrastructure.
I think, you know, looking atprivate credit versus private
(21:55):
equity makes a lot of sense inportfolios.
Now, given the income that'savailable there, embracing a
multi alternative strategythat's going to sort of help
smooth the ride out.
Within an alternatives bucket, Ithink would all be sort of good
potential ideas as we look intonext year to help really buffer
some of the potential risk aftera couple really, really great
(22:17):
years across risk assets.
Well, thank you.
Thank you.
I know you have to jump over toBloomberg anything you want to
leave us with here.
You're 1 of my favorites.
I appreciate you taking the timewith us today.
Anything you want to leave uswith.
Oh, well, thanks for sayingthat.
You know, again, I think it'sjust about kind of managing
emotions, which it always is.
(22:38):
And you and the team are sogreat at helping your clients do
that.
It's so hard during times likethis, you know, not only with
the election, but, but alsowith, kind of the, the
excitement, I think that'spermeating markets right now.
so, continue to think about, Ithink, pruning risk, trimming
into strength, looking toredeploy assets into areas that
are, that offer, betterfundamentals, mid cap stocks in
(23:01):
the United States, um, we didn'ttalk much about, but
infrastructure, more defensiveareas like utilities, and then
just taking advantage of thebackup and bond yields that
we've seen, I think, are allpotential.
You know, great ideas forportfolios into next year.
But I know you continue to do agreat job, you know, managing
risk and finding opportunitieswith your clients.
So best of luck to you and theteam into next year.
(23:23):
And I'm sure we'll be in touch.
Thank you, Emily.
Appreciate it very much.
Thank you to both Scott andEmily for the informative update
on what they see coming in 2025.
We are incredibly grateful toEmily Roland for sharing her
knowledge with our listeners.
And we eagerly anticipate herreturn to our podcast next year.
Please remember that the viewsand opinions expressed by guest
(23:44):
speakers are solely their own.
And do not necessarily reflectthe views of paramount
associates, wealth management.
The information provided byexternal speakers is for
informational purposes only.
And is not intended assolicitation or recommendation
for any particular investmentstrategy or any product or
service.
(24:04):
For now.
Stay informed.
Stay ahead and join us nextweek.
For more key updates shaping theglobal economy.
Thank you for tuning intoparamount wealth perspectives.
We hope you all have a fantasticweek.
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