Time To Be "Tactically Bearish" Stocks? | Lance Roberts & Adam Taggart
Jan 11, 2025
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In this insightful discussion, portfolio manager Lance Roberts shares his cautious outlook on the stock market, citing stretched valuations and slowing economic growth. He anticipates a disappointing year for stocks, unlike the previous 20%+ returns. The conversation dives into rising bond yields, market correction risks, and the peculiar phenomenon of speculative assets like Fartcoin. Roberts emphasizes the importance of disciplined investment strategies and personal accountability in navigating these uncertain financial waters.
Economic growth slowdowns and stretched valuations motivate a tactical bearish outlook on stocks, highlighting potential market disappointments ahead.
Transformations in global political leadership could lead to nationalistic policies, affecting markets and economic strategies on a broader scale.
Recent job market data complicates the Federal Reserve's decisions regarding rate cuts, introducing uncertainty into future monetary policy expectations.
Investment strategies are shifting towards lower volatility assets while emphasizing personal accountability and mindset in overcoming market challenges.
Deep dives
Economic Growth and Stock Outlook
Concerns arise regarding the slowdown in economic growth and its implications for stock valuations. The speakers express a tactical bearish stance towards stocks due to weakening economic indicators, even though they do not foresee an outright market crash. They emphasize that the basis for these concerns lies in valuations, suggesting that elevated stock prices need to be supported by strong economic growth to remain sustainable. As such, the deterioration in the economic backdrop is seen as potentially leading to a reassessment of stock prices.
Impact of Political Change
There is a notable global shift in political leadership, with many countries experiencing significant changes in heads of state. These changes could herald new policy approaches that may reshape national agendas, potentially leading to varying economic impacts. The speakers highlight that voters are increasingly demanding change, driven by dissatisfaction with the outcomes of existing policies. This trend may signal a departure from globalization towards more nationalistic and protectionist economic policies that can affect markets.
Job Market Analysis and Fed Policy
Recent job market data shows significant surprises in employment figures, which complicate the Federal Reserve's policy considerations on rate cuts. Even with strong payroll numbers, there are indications of underlying weakness in the job market, such as a decline in full-time employment relative to population growth. The speakers note concerns that the Fed may not proceed with anticipated rate cuts if strong employment persists, as inflation and economic stability could take precedence. This uncertainty contributes to a cautious market sentiment regarding future monetary policy.
Interest Rates and Market Dynamics
The discussion addresses rising interest rates and their implications for economic activity and market performance. Higher rates could indicate a tightening environment where borrowing becomes more expensive, which generally slows economic growth. Moreover, the relationship between interest rates and economic indicators such as GDP growth is explored, with indications that current rates may not accurately reflect economic fundamentals. The potential for a liquidity crisis due to higher rates is also noted, strengthening the case for a cautious investment approach.
Corporate Earnings Expectations
The speakers highlight growing concerns over corporate earnings and the current optimistic expectations held by analysts. They argue that despite suggestions of increased earnings growth for small-cap stocks, underlying economic conditions do not support these optimistic forecasts. The disparity between the performance of major tech-driven stocks and smaller companies is evident, with significant earnings growth concentrated among a few large firms. There is a belief that reliance on these dominant firms could overshadow wider economic challenges and present risks over the long term.
Investment Strategy for the Future
Plans are shared regarding shifting investment strategies in anticipation of a more volatile market landscape in the coming years. The speakers suggest a reallocation towards lower volatility assets and a cautious stance on equities, particularly focusing on maintaining cash reserves for flexibility. They emphasize the importance of having an investment policy statement that guides decision-making, reminding investors to avoid being swayed by market euphoria. A disciplined approach to portfolio management is deemed vital to navigate the expected economic uncertainties.
Personal Accountability and Empowerment
A significant theme in the conversation emphasizes the need for personal accountability and the importance of mindset in overcoming challenges. The speakers discuss the two-wolf analogy, where individuals are prompted to choose whether to embody positivity and hope or to dwell in negativity and victimhood. They advocate for reflecting on personal choices rather than attributing blame to external factors, which is essential to personal growth and fostering healthier relationships. This perspective aims to encourage proactive decision-making and resilience in navigating life's challenges.
The drivers that support economic growth and earnings are slowing down. And valuations are stretched to record extremes.
For these reasons, portfolio manager Lance Roberts is turning significantly more tactically bearish on stock this year.
This doesn't necessarily mean he expects an imminent crash.
But it does mean he expects stocks to put in a much more disappointing year than investors have become used to after back-to-back 20%+ annual returns.
We discuss his outlook in depth, as well as the new payrolls data, rising bond yields, why credit spreads remain so tight, and his firm's latest trades.
For everything that mattered to markets, watch this new Weekly Market Recap.
WORRIED ABOUT THE MARKET? SCHEDULE YOUR FREE PORTFOLIO REVIEW with Thoughtful Money's endorsed financial advisors at https://www.thoughtfulmoney.com
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