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If you need it in 2 years for a deposit, you don't want to put that $$ at risk. You need to put it in an instrument that will be there for sure in 2 years. While the S&P 500 isn't going away, it's possible (not predicting) that it could be down 50% in 2 years. In this situation, capital preservation is far more important than maximum growth.
Look at the buffer ETFs, as they have less downside risk and still some upside potential. He's also seen commercials for private mortgage investment corps, generating 7-9% yields; in a registered account there'd be no tax consequences. He'd go with that, as even the buffer ETFs are capped around 10%.
Value has been underperforming growth in a big way for the better part of a decade. There will be periods, from time to time, when value beats growth. If the markets are going to be softer and weaker, and we are going to get a broadening out of earnings in the tech sector, then 2025-26 is likely to see $$ coming out of higher-priced tech names and into value stocks. At that time, value (banks, energy, industrials, lower PEs) will perform better than growth, no matter who the fund manager is.
So you have to make a market call. Right now, he's neutral on that strategy. He wouldn't be tremendously overweight value, but at the same time having some exposure would make a lot of sense.
The whole energy complex in US and Canada is up across the board, related to US policy sanctions of Russian oil. So oil prices jumped up. A puzzle as to why this name hasn't also moved, must be company-specific. Could be a canary in a coal mine, so you want to ask some questions.
Earnings Growth and 2025
Warren Buffett was a student of Benjamin Graham, who wrote a seminal book on value investing. In the short run, the market is a voting machine. In the long run, it's a weighing machine. This means that in the short run, markets can get irrational, emotional, and swing up and down. In the long run, fundamentals matter and markets will track those long-term, fundamental trends.
To get a handle on short-term swings, Citigroup puts out the Economic Surprise Index. They compare the consensus for a particular economic indicator with the actual number, and whether it's a positive or negative surprise. Whether we're beating expectations or not tends to have an impact on markets.
When interest rates started to come down, the S&P 500 trend channel accelerated. Interest rates started to come down in 2024, until very recently where we're back at 5% again. Financial conditions are getting easier, which is what usually happens when interest rates fall and stocks do well.
But in the last couple of months, financial conditions have started to tighten. Both stocks and bonds are starting to work against the trend. If we start to see the 30-year break above 5% and hold, that spells to him tighter financial conditions and further weakness to come. What do we need to happen to get there?
Enter earnings season. In 2022, consensus expectations were for $260 of earnings for 2024. At the end of 2024, it now looks as though the number will be $242. The market typically, though not always, overestimates what earnings are going to be.
The consensus for 2025 is $272, which is more than 10% earnings growth. We're in a 4-5% nominal GDP market, so it would be difficult to generate that 10% growth unless things are firing on all cylinders. Looking at 2026, consensus is adding another 10% earnings growth on top of that. Markets are priced for perfection. Unless the news and outlook are both very, very good, expect people to sell into rallies during earnings season and expect financial conditions to tighten up a bit more.
It's turned around in the last 6 months under the new CEO, rallying 40%. In the face of expiring drug patents, they launched a revolutionary schizophrenia drug. He also likes the rest of their pipeline to treat cardiovascular disease and oncology. He bought shares late last year.
They minimally invasive surgical devices, particularly in cardio-vascular, plus medical services. Last year, shares rallied 55% and is up 6% so far this year, thanks to JNJ pausing a competing device. He expects double-digit growth across the entire business, which is rare for pharma.
Long-term, still likes it. The world is moving in that direction, but won't be moving very quickly over the next few years under Trump. Still lots of value, but you have to think multiple years into the future.
Up to the individual investor whether to keep accumulating, or to take the money and invest it elsewhere. He's sticking with it for now, and he'll update BNN viewers if he changes his view.