Opinions
Larry Berman CFA, CMT, CTA A Comment -- General Comments From an Expert A Commentary COMMENT Apr 14, 2025
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He has no idea what's spurring the action today. Having these bounces all the time probably just goes to the fact that we're going to have volatility, up or down, for the next little while. A great deal is due to the uncertainty from the US administration on tariffs and on all kinds of other things.
As an investment manager or someone running a company, you always make investment decisions within a degree of uncertainty. But it's the level of uncertainty we're seeing presently that's so difficult. This is going to lead to a very difficult environment down the road, as people won't be able to make the right decisions for the long term on capital expenditures and such.
It'll be interesting to see what happens with earnings from the big tech companies. At the end of last year, they said they'd be spending billions of dollars on capex. Are they going to pull back because of all the uncertainty?
All the uncertainty is causing consumer sentiment to be negative, and the small business outlook is negative as well. This will definitely cause a slowdown, and probably a recession. That leads to an argument from an investment point of view that you're going to see lower earnings growth on the S&P 500. Earnings growth numbers are pretty high still, and will probably come down, and therefore the PE multiple in the US will probably contract.
A lot of companies are down, and so there are opportunities. There's a great chance to pick up great businesses, at more reasonable valuations for the long term, if you've really done your work.
The risk in the marketplace is that this uncertainty continues. We're seeing that in the way the USD is reacting and the way the bond market's reacting. Usually when we have difficult situations around the world, the USD and bond markets rally (prices go up, yields go down). That's really not happening. There's a notion that the world's looking at the US and saying it's just too unstable. Investors are just deploying capital in their own currencies or into other, non-US currencies. This becomes tricky, as the US depends on people buying their debt.
Trump's issue with Powell is very awkward. Yesterday we saw Trump piling on unnecessary insults. You want the Fed on your side to get you through the difficult time of tariffs. If you get rid of somebody like that, and put in a political person, this leads to the failure of the Fed being independent.
And they should, but we'll have to see what tomorrow brings.
When he looks at the NASDAQ futures, there's a line that goes all the way back to December when it was up around 22,200. The 19,000 level in the June contract is really important as a pretty solid indicator. It was breached earlier today, but has come off now.
He's holding anywhere between 20-30% cash across various accounts and even in his fund. If we get a close over that 19,000 on the June futures, he'll put that cash to work.
Sorry to say, but no. There is a timeline to it though. Trump's going to have to pull back on the rhetoric come the fall, which really means by the summer. He believes the tariff rhetoric will continue until, at the latest, the end of June. Then they have to focus on the mid-term elections, which are a year away. The last thing they want to do is lose the majority in Congress.
So we're still in for some volatility.
For the past couple of years it's been all about generative AI. He thinks that come next year (so starting in the second half of this year) it's going to be all about robotics.
The bullseye in the chart is all about the hardware -- physical foundation that ensures the robots have all the mechanical capabilities and sensory input. The second ring is all about the operating system and software side -- intelligence that allows decision-making and perception. Finally, the outer ring is all about applications and integration of solutions toward specific industries (such as healthcare, hospitality, transportation).
He'll talk in the Top Picks about a handful of these.
Everyone brings up this word, but it's such a low probability. You can have slower growth, absolutely with all the tariff rhetoric. But he doesn't think it's going to actually result in a recession. The situation is self-inflicted by Trump, and we've seen over the last couple of days how he can dial it back. He and his people are watching the market and they know how to rig it.
Considerations during tariff uncertainty: Does your company pay a dividend?
If so, what is the payout ratio? A dividend won’t always stop a stock from falling. Just look at BCE Inc. for confirmation of this. Its current yield is 13.4 per cent, but its stock is down 28 per cent in the past year. This, of course, is because investors fear it will cut its dividend. But for a stock paying a dividend that is not likely to be cut, the dividend can provide both a floor for a stock price, and ongoing income for investors who hold that stock throughout a recession. Secure dividends might lessen the pain of any continued market decline. When looking at stocks you own, take a look at their dividend history and, importantly, their payout ratio. A company that has paid dividends for 45 years and with a payout ratio of only 15 per cent is probably going to be secure. Note we said “secure” and not “safe,” as no dividend is guaranteed, ever.
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There isn't a company in the S&P 500 that doesn't use leverage. A lot of advisers who don't understand the private markets, or who don't have access, will speak out against it. It's naive for someone to say that private equity's future returns will be depressed due to leverage.
Private markets are illiquid, and that's the biggest distinguishing factor. As an investor, if you want something you can trade into and out of all the time, then private markets aren't for you. If you understand the benefits of earning the illiquidity premium, then you should allocate a portion of your portfolio to it. 90% of the investing universe is in private securities, not public markets. Pension funds around the world have been doing this for decades.
Investing in companies like KKR gives an investor access to the profitability from private market and private credit investments, but not actually to the private market and credit themselves. The two situations are very different.