Opinions Larry Berman CFA, CMT, CTAA Comment -- General Comments From an ExpertA CommentaryCOMMENTJul 14, 2025
Larry Berman CFA, CMT, CTAYou might be interested:
We're seeing the typical script. In August, his team was warning clients to be careful. Usually you have a swoon in September, which typically lasts until October 11-14. Then we usually go into a seasonal rally and a Santa Claus rally to end the year.
It's playing by the book. But there's no ignoring the fact that there's a 90% chance that the Fed will raise interest rates next week. That's a serious headwind. When 10-year bond yield cross 5%, and oil getting to critical levels ~$100, investors have to start taking notice. You have to wonder if this is just the typical swoon, part of the script? Or is it the start of something more concerning?
For a typical client portfolio (70/30) he's been pretty aggressive, even up to 90% equity. His team believes we're in a really good, unfolding bull market.
When you go into periods like this, you want to have respect for your asset allocation. When things start to turn, they don't turn right away. By the time you get 4 data points, you already have a market that's down quite a bit.
He doesn't think we're going there. This is a buying opportunity. When they add up the sum of the parts of the market (they cover 300 companies), the earnings power we're seeing is unbelievable. It really is. Growth rates are so much higher, the kind you see coming out of a recession. But we're not. We're 4 years into a bull market.
Earnings growth is so good, he thinks we'll be in an elongated cycle. Things can disrupt that such as Federal Reserve error or oil going to $150. So you have to be somewhat mindful.
No, growth rates are very strong. Strong for the rest of this year and for next. They look to start slowing to a more regular pace of 12-14% in 2028. But we'll see. The numbers keep getting ratcheted up. The spending is real.
We're seeing productivity gains to small caps, which have been rallying and outperforming. They're very interest-sensitive, so should be going the other way. (They are right now because everything is.) But they've done better than big caps. Productivity gains are being felt across the board.
We're into a really beautiful expansion, and people are still misjudging the upside.
What we've seen is just a supply response -- there's just not a lot of copper out there. But we're going to need it for a long time. It's a great play, but it's already reflected in the stocks and they're not as cheap as they were. He owns a bunch of them.
Still likes FCX. Grasberg coming fully online will be very beneficial. Likes HBM, LUN, CS (though higher risk), TECK.B with its Anglo merger. You can own them all, but FCX is probably the best bang for your buck right now.
In the markets, 1+1 does not always =2. :) These things got way too pricey. There are bound to be interest rate gyrations when the US is going to raise rates 2-3 times. If the US raises rates like this, the BOC will probably have to raise a bit as well (probably not as much). That's what the market thinks.
;fill-opacity:1;'/%3e%3cpath%20d='M31%2018.6001V30H8V18.6001L14.1334%2022.4334L19.4999%2014L24.8669%2022.4334L31%2018.6001Z'%20fill='%23EE5432'%20style='fill:%23EE5432;fill:color(display-p3%200.9340%200.3310%200.1956);fill-opacity:1;'/%3e%3c/svg%3e){kind=small}
Premium content
Right now, it's all about the potential for greater inflation from higher oil prices and bond yields moving higher again. Higher bond yields and oil prices put inflation, valuations, and central bank moves back into focus.
That said, equities are still on solid ground at this point driven by the anchor of really solid earnings growth. We haven't seen this type of earnings growth in many years.
Since the mid-August highs, the S&P is down about 3%. September plus midterm elections could cause volatility to persist for a while. He'd be a proponent of using cash to take advantage of stocks that have dipped in the last little while. Take a look at high-quality names that are only down because the market's down.
Good news is that, historically, the 6-12 months after midterm elections tend to be one of the strongest periods ever on average. Hopefully that's the case once again. He thinks it'll be driven by earnings, continued capex expenditure, continued AI investment, as well as reshoring and nearshoring.
Historically, you see about a 15% drawdown in years where there's a midterm election. It doesn't mean you'll see that drawdown every single year there's a midterm election. It's just the average.
So far this year we've seen a 9% drawdown. But he could see that the combination of September seasonality with midterms would add a bit more volatility this month. Hard to say. We're down 3% since mid-August. If markets head 5% or even 10% lower, he'd use cash to buy equities.
Very difficult. His sense is that we'll see an eventual easing of tensions, and things will normalize to a certain extent. But keep them in mind. Does a company have a lot of US exposure? Do they ship a lot to the US? Do they have business in the US?
DOL, for example, doesn't really have business in the US and so they're not really affected by tariffs.
Clearly on solid footing. There are concerns about the economy and any impact from tariffs. Many banks are trading at multiples above average, but there may be reasons for that. They have diversified revenue streams.
Broadly, banks have a place in your portfolio. As do strong, big US banks.
Broadly, you're not taking a hit when buying US holdings in US dollars. US dollars will continue to appreciate; if they don't, it's a roundtrip eventually. You want to look at the company itself.
As always, be diversified by sector and geography. So why not be diversified by currency as well? Important to own in CAD, as well as in USD and international currencies via ADRs.
With CDRs, recognize that the volume of trading will be a bit lower. There could be some slack in the bid/ask. There are costs to owning CDRs, which could be as much as 60 bps.
For him, if he's going to buy a US security, he prefers to buy on the NYSE. His clients have benefited, as the USD has appreciated very well over the years.
Tweaking Investment Exposure
He often gets questions about whether it's a good time to invest now, and it's usually new money coming off the sidelines. Right now, the US equity market's at all-time highs. One of the ways you can be a bit more conservative at times, or aggressive at times, is by looking at different ways to get exposure to the US large-cap area. And you can do that by using factors.
He brought along a chart of 5 different ETFs as ways to play: SPHB, SPLV, SPHQ, SDY, and SPY.
SPY -- low-cost MER, broad S&P 500 exposure.
SPHB -- S&P, high beta. Rebalanced a couple of times a year into the higher-volatility names. Typically exposed to ~20% of the index.
SPLV -- S&P, low volatility. About 20% of the index, typically higher yield. In the long run, similar returns to the broader market.
SPHQ -- his favourite factor. High quality. In the long run, uses filters to give you 20 names of the highest-quality companies in the S&P. Good balance sheets, less sensitive to the economic cycle. Some dividends, some growth. High-performing names. If you can handle the ride, this is the one to buy and hold.
SDY -- a way to play the S&P with a dividend basket.
Reality is that depending on what kind of investor you are, there's a different solution for everyone. Right now, with markets at all-time highs, he's not comfortable telling people to take $$ out of the bank and put it in the market. If you did right now, he'd say to go low volatility or high dividends. Because...look at his next chart.
The next chart shows that, during volatile periods over the years, when it's bad (as it was during Covid or 2015-2016) the low volatility and higher dividend options give you a better experience. They keep you invested, with more yield and less downside. But after a correction (typically about 13%), you want to pivot and shift into high-beta names for more growth, the broad S&P, or high-quality names. But do this when markets are cheap, not when they're expensive.
Learn which tools work in which environment, but there's an ETF for just about every person out there. Always stay fully invested for the long run, as it's really the best thing people can do. But tweak your exposure, so if we go through an adverse period, it's a little bit less bad. We can't time markets perfectly.