HOW I SEE IT – by Bruce

Volatile Month/Random Thoughts/Constructive

Equities volatile this week - overall indices like Dow are flat for the month to slightly down - off from ATHs - as we move into March/April we tend to see a pull backs - Ned Davis S&P 500 sector roadmap agrees - should be shallow.

Positives. AAII investment sentiment survey - 33.2% bullish/ 27% neutral/ 39.8% bearish - bullish reading still dropping - not bargain - basement prices yet - could be for software stocks though.

RBC. US Equity Strategy - In the near term current aggregate tariff levels have come down and uncertainty has risen.  RBC CM - "Does not believe that the latest tariff developments will have a material impact on their long-term outlook of the US equity market. They remain constructive on US equities in the year ahead. US companies have emphasized their ability to manage through the evolving tariff landscape despite persistent uncertainty.”

Fidelity - Key takeaways - The Bull Market - remains intact despite maturity. Earnings growth continues to drive equity performance. Valuations are elevated but justified by fundamentals. Market breath continues to broaden beyond the Mag 7. Commodities and gold present strong diversification opportunities. Despite continuous headline shocks market signals remain constructive. Both cyclical and secular bull markets are intact. US valuations are high, but supported by robust earnings growth, tight credit spreads, and expanding profit margins.

Ned Davis Research - Two secular trends that could change in the next 3 to 5 years are small versus large - and growth versus value. Small caps have been in a secular bear versus large cap since 2011, the longest as such period in the last 100 years. Whether the bottom was last summer remains to be seen, but the major phase has often come after the next business cycle.

 

Jim Paulsen – “Random thoughts – 1. Baton pass from technology to broad markets is so far successful. 2. Food and energy consumption now only a small part of the budget. 3. When Japan stocks outperform US stocks, US Tech underperforms. 4. Unlike the past the Republicans have lost the independence. 5.  Investing internationally is all about the US dollar. 6. US to slow relative to global growth. 7. Without a JOLT job opening suggest no inflation. 8. Is their stock market life after the Mag 7.

Normal bond yields? A return to normal should imply more regular economic policy accommodation, a continued advance in the stock market, and a significant decline in the real yield structure within the US.”

Dr. Ed Yardeni – “We aren’t too worried about the latest recession mongering. In the worst-case scenario, the Fed will quickly step in with emergency liquidity facilities to avert an economy, wide credit crunch, and downturn. We expect that laid off coders will be replaced with promoters who can work most efficiently with AI tools to boost their company’s productivity. We remain impressed by the resilience of the economy. Consider consumer spending, employment, manufacturing, coincident indicators - all positive.”

Tom Lee – “I think things are going to change as we get into March - because we know February tends to be flat if you’re up the first week of January. And if you’re up for the month of January - February tends to be payback month - but March is stronger so roughly a 2% gain. In fact, the whole March - April looks like it’s good probabilities for further gains. Energy, basically materials, Mag 7, industrial, financials, regional banks - stay on target knowing that this is still the most hated V shaped rally.”

 

Negatives. Charts - US cash allocation - US equity mutual funds all-time low cash allocations. GS.

Tariff reconciliation - Bank of America - we estimate US effective tariffs drop by about 1.5 PP to 11.6% but could land below 10% based on collected revenues.

US tariffs and government-revenues - then there is additional confusion about treasury revenues and a potential wave of rebates doubts that are bound to undercut assumptions that tear up income will hit roughly $3 billion this year. This could stop a new round of stimulus checks.

Ned Davis Research – “I am concerned about the secular trend in stocks and the economy longer term. As two examples credit card debt soared in December and yet retail sales supposedly had a little growth and likewise stock margin debt soared and stocks have gone up but with lots of rotation. I also fear that the Blue Owl situation could be a canary in a coal mine.”

Dr. Ed Yardeni - AI Derangement syndrome and its consequences. AI was widely thought of as a productive enhancing tool now the worry is that it has turned into a terminator of numerous businesses and the jobs they provide.

Brian Westbury - The Trump tariffs are dead, long live the Trump tariffs. While Trump tariffs seemingly died, they are not gone for good. And while many may hate the tariffs for all kinds of philosophical and economic reasons the economy continues to grow with relatively low inflation.

Investment strategy - Compounding. “Compound interest is the eighth wonder of the world. He who understands it…. earns it, he who doesn’t …. pays it." - Albert Einstein

Stock of the Days: FFH, EMA, WCP, EFN, NPI

 

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