Markets Are Still Too High And Risks Keep Rising — Here’s What Smart Investors Are Doing | Rise UP!

As much as the worst case scenario seems to be off the table and will probably be okay, if we do end up with a 15%, you know, effective tariff rate, that's a real number that didn't used to exist. So it has to show up somewhere. And I think it just, you know, it's a matter of time, until those cracks become more evident. Hi, everyone, and welcome to Rise Up. I think we had our first week off last week since we launched this channel. So we're really, really thrilled to have you back. Unfortunately, I don't have my fantastic partner Terry with me. She is in my homeland in Africa, looking at all the wild animals. I actually just spoke to her today. She's having an amazing time. It's winter down there. But here we are in beautiful summer and have a beautiful guest, Scott. Welcome. It's great to see you again. Thanks, Joe. And Alexis, and we have as usual, Scott is a CFP. Alexis is a brilliant investment mind, who is the Director of Investment Research. Hey, before we get going, Scott, I see it's one point BFG. We're used to introducing as Bleakly. There was lots of media coverage and all the financial press about the name change. Tell me about one point. What does it mean? Yeah, so after trading under the name Bleakly Financial for years, we decided that... People didn't like the name. Some people didn't like it more than others. Yeah. So what it got down to from our perspective was Bleakly was a name. One point was a brand. And what we're trying to do at the firm is to create a national brand. And we're building out a national presence pretty quickly, actually. We're quite a bit ahead of schedule. We spent a lot of time looking at a lot of different names. And what we thought ultimately was at one point best described what we're trying to accomplish with our clients. So a brand is a promise. And our promise is to basically be one point of contact for our clients with a very, very large infrastructure behind that one point, whether it's to give advice on financial planning, investment planning, estate planning, and then the idea of being here to deliver service for our clients intergenerationally. And finally, to simplify the complex for our clients to make their financial lives easier so they can live better and not have to worry about these kinds of things. So we're really excited. You've grown a ton, obviously. I know when we first met, you were around eight or nine billion. You're now at almost 12 billion or something like that. So that's a lot of growth in a few months. So congratulations. And Alexis, we're happy to have you here. Obviously, it's been an amazing little run here in the last couple of weeks. Markets obviously going through a bit of a tough spell right now, which we'll talk about in a second, but a lot going on right now. Obviously, we had the tariff surprise. I don't think it was a surprise, but some pretty big, hefty tariff numbers. I think there was a lot of hope we would punt a lot. I guess Mexico gets a 90-day reprieve, but everyone else gets real tariff numbers hitting in. We also, I think it's starting to see today a labor report that suggests the economy is actually really not doing great, that we're maybe at zero or 1% kind of for the first six months. And the employment numbers are obviously not great. And the Fed, I thought I was a little surprised with the tone. Maybe it's a little bit of defiance by Jerome Powell, but he clearly is more focused on the inflation challenge than on the economic. Although today I noticed for the first time, bad news actually turned into bad news. It wasn't like, oh, well, now they're definitely going to drop rates. And in fact, we ended up having a pretty tough run here. Just to recap some of the numbers, obviously had a very, very good run in the month of July, another 2% or 2.5% of the S&P, or over 3% on the NASDAQ. And what we're seeing as well, Alexis, huge performance from some of the Mag 7, especially the ones where they need to be with AI. So firms like Meta doing extremely well, Microsoft doing really well. And then today, Amazon and Apple, a little while ago, who don't seem to be quite on the AI bus, seem to not be doing as well. So I guess question number one on our big three, let's talk a little bit about what you're seeing in the markets and how are you feeling about everything that's transpired? Is there anything that sticks out to you more than anything else? Obviously, today, one of the worst days we've seen in a while. Yeah, definitely. So to your point, Meta and Microsoft both had spectacular earnings. We're starting to see that trend again of those strong earnings being able to somewhat uphold the market. But I think what has been the key theme for us this year and something that we're really excited to finally see is that being diversified and owning things other than just the Magnificent 7 is really paying off. The last 5 to 10 years, that was the only strategy that worked. But this year, with all the volatility, with the sharp swings, both up and down that we've seen, it's become more clear that those stocks can't rise in a straight line forever. And we're starting to see other parts of the market, particularly the international assets, hold up much better than some of the domestic. Even exposure to different alternatives and less correlated assets like gold, silver, uranium has also benefited portfolios. So it really feels like finally being diversified is a sound strategy. We're starting to see those results this year. And when you look at the trade-off that's happening right now, whether the economy is strong or the economy is soft, and whether inflation is coming down or not, how do you see that playing out in the way you should invest? Do you see the economy in a place where it's more fragile or do you think we're doing fine? And we're going to spend more time on tariffs when we go into the deep subject today, but what's your thinking about the trade-off as you're investing today and as you're thinking about the economy today? Yeah, what is interesting is, aside from the last few days here, the last few months, the markets have been very resilient and have seemed to pretty much ignore all the uncertainty that's out there and that exact dynamic that you're explaining between tariffs and the economy and where's the impact and what ultimately will happen. But I think the fear around stagflation remains real. Maybe the fear around recession has lessened, but tariffs and all these uncertainties are going to show up somewhere, and we saw a glimpse of that in the unemployment numbers today, where it seems like this uncertainty is making it harder for companies to make decisions, especially as it relates to hiring, and that ultimately will find its way into the economic numbers. And at some point in time, it seems like the market will have to care and pay closer attention to what's happening under the hood. And Scott, obviously you're dealing with clients every day, and I know you take a lot of pride in the fact that you have been diversified, have been benefiting from having international stocks and stocks that are not only in the Mag 7. But when you look at the trade-off today, if I am meant to have a 50% stocks, 50% bonds allocation, it's quite likely that given what's happened with the S&P 500, that my mix today is 55-45. Should you be overcompensating? Should you be rebalancing? What would you be suggesting to people who've enjoyed this really nice run? We've had a little bit of a pullback, but it's really 1.5%. It's not a material enough number to make a difference. Would you recommend somebody who's now got a lot more in stocks than they did going into the rebalance? How do you think about it? When should you be thinking about normalizing your risk profile? Yeah. So the first thing is to be, I think, invested intentionally. So if you're supposed to be 50% equities and 50% fixed income, then you should be. And that should be based on your liquidity need, how much income do you need in the portfolio, your time horizon. But if you're clear on that, then yeah, we are rebalancing. We were lucky this year. We sold some equities in April. I want to if we didn't bottom tick that rebalance trade where we bought equities in April. Yeah. I know when we were on in April, we'd had that big decline. Correct. And you had said we're rebalancing because in fact, the opposite had happened, right? And Marco, this is one of the strongest recoveries we've seen in a three-month period. That second quarter was breathtaking. And if you did nothing, you suffered the pain, but then didn't get as much of the rebound. So just doing the prudent thing of rebalancing. And now we're on the opposite end. Like, hey, you're basically doing what you should be doing, just selling high and buying low, right? Well, we rebalanced in April. I want to say that that particular trade, we added two and a half percent to our equity portfolios in April. We basically bottom tick not because we're smart, but because we follow levels. And that was what our system told us. We took some equities off the table last week as we sort of got back to these highs. We might have been right and we might not have been right. But the idea is that we have a discipline. You want to sell off some equities when the market's at the higher level. You want to buy equities in the markets at a lower level. That's going to add a little bit to your long-term returns. But more importantly, to maintain your discipline, stay in your shape. That's what we do. We've always done it. It's always been helpful. And I think it's very helpful to think about this as a portfolio construction challenge. And I want to go to the second topic here because it kind of lays into that. Valuations are really extreme in anything that has any AI. But the healthcare sector has really been getting almost no love. And I noticed even today with President Trump sending a letter to all the pharma companies saying, hey, you're going to give us most favored nation pricing. They're under a lot of stress, but they make a ton of money. So tell me a little bit about pharma, its role, how you should be thinking about it. Scott, any thoughts on healthcare? Yeah. Yeah. So probably three thoughts on healthcare. And I spoke to David Mandelbaum this morning, just coincidentally. He handles a healthcare fund for our clients and he's probably one of the best healthcare managers in the country. And I can say that without bragging. This is an actual portfolio dedicated to healthcare. That's right. And so the way we see healthcare right now, really from the big picture down, healthcare goes relatively cheap. It's been beat up, obviously. There's been a lot of focus, if you will, on this situation with Trump. He just came out with this letter, for example, talking about healthcare companies being limited, pharma companies being limited on what they can charge. So what you saw yesterday was you saw a big drop in pharma stocks. And what you saw this morning was a big rebound. And the reason for that is, if you really looked at the letter that Trump sent out, what he was referring to very narrowly were really two things. One was pricing on new products going forward. So if that's the case, then the companies who are bringing out these new products, these new drugs, they'll have time to create pricing, whether it's relative to the United States or internationally. So that's really not a problem for them. The second part of that was talking about pricing for Medicaid. Medicaid already pays basically the lowest prices of anybody out there. So that was sort of a reaction yesterday in the market. And when I think people had a chance to digest it, they realized it really didn't matter. So that's why I think you're seeing a rebound there. As you look at the broader situation in healthcare, there are a couple of things going on. One is healthcare stocks are relatively cheap, make up about 18% of GDP, but healthcare stocks are only about 8% of the S&P 500. I think we're at almost an all-time low on a relative basis for sort of the market cap for healthcare stocks relative to their participation in the economy. So I think that's good. We like our healthcare position because I like to own some things that are cheap. We have a lot of stocks in our portfolio right now that are fundamentally expensive. The other thing to look at too on the positive side is the government is now talking about Medicare and Medicaid paying for these weight loss drugs. That could be very helpful for Lilly, for example. So that's maybe going to be a lift, if you will. We think that pharma stocks are cheap in general. You want to avoid the value traps, of course. But we like Abbey, we like Lilly. They're good growth pharma names. Again, we're not recommending stocks here, but we do suggest that you're getting a nice dividends in a lot of these companies. I think a theme we're hearing a lot of is don't go where everyone's already made their money. Go to the places that they haven't been made, whether it's lightening up on stocks because they've run up in general, whether it's investing in areas like Europe or pharma where they haven't participated as much. They also are likely to provide protection if things get corrected. And we see that on days like today. The things that have gone up the most also have the quickest adjustment. And one other thing, Scott, I want to highlight that I thought was really interesting in what you're saying. That percentage of the entire S&P that any one sector owns, it is remarkable how it keeps adjusting and rotating. And if you own financial stocks in the 90s, when they were the leading darlings of everyone, you then spent the next 15 years underperforming. And then if you owned technology stocks when they were low after the 2000 correction, you did extremely well. And health care was a huge part, and now it's become a very small part, but it's likely should represent more than 7% of the S&P 500, given how much gets spent of the GDP on health care. So I think it's an interesting way to think about things. Again, just tilting, doing the Warren Buffett rule, don't go where everyone is, go where they're not. And again, that's not making any heroic moves. It's just bold moves to take advantage of the fact that there's inefficiencies in the market occasionally. I want to talk a little bit, Alexis, about a third story, which is really one that's interesting for retail and institutional investors. So Coinbase is creating an everything exchange. And today, the news doesn't seem to be very well taken. They want to basically tokenize, create a marketplace for all kinds of assets. I actually noticed the CEO of Robinhood talking about that for private companies as well, and tokenization. And it seems like this is an area where there's a lot of interest and a lot of new offerings that are going to be coming out as a consequence. So tell me just how would you think about that, Alexis? What would you tell people if you're tokenizing art or tokenizing a private company? How should people be thinking about that? Yeah, so definitely an interesting development, and I think kind of gives a stamp of approval that these digital assets are here to stay and there will continue to be an evolution in the space. And to your point, this idea of tokenization of real assets like real estate or stocks or bonds is creating digital tokens on a blockchain, making them easier to trade, making them more accessible, less friction, and broadening access, really. So for example, if there's a $10 million building, that could be divided into thousands of tokens, giving individuals the ability to purchase fractional shares of that one building rather than having to write a $10 million check to do so. So it could reduce costs and, again, increase some efficiency and broaden access. However, the regulation in this space continues to evolve. I don't know that all the legal protections and the regulation is all figured out, and liquidity can sometimes be misleading. So I would say caution whenever there's a new development in markets to be careful and to do your homework and to really understand what it is that you're owning. And not to mention, there's been other developments like low-cost ETFs that also broaden access and give you the ability to invest in a more cost-effective way. So we'll see and we'll continue to watch closely as to how this all shapes up. Yeah, and I'd just say in these situations, buyer beware. If it's not regulated, you're all on your own. So again, I feel very good if the SEC has put rules around what it takes to buy things. When you invest in a public company, they have regulations around governance and reporting and tax and accounting. That's not true for a lot of these assets. So again, buyer beware. I would be very, very careful. But it's going to be an interesting area. It is the Wild West. There might be some things that blow up. And in this very frothy environment where meme stocks go up 50% at a day, who knows what could happen here? But don't get sucked in by greed. It never really works. So let's go to our big topic. Obviously, tariffs are a big deal. I'm going to just read some stats here. Tariffs are going to be, obviously, almost every country, ranging from 10% to 41%. Any good that the White House has basically said, anything that's trying to ship to avoid tariffs will face a 40% tax. So that's an interesting and very expensive way to try to avoid tariffs. And I think Canada went up to 35% from 25%. As it stands today, we basically have tariffs across the board. And all the estimates are somewhere between 15% and 18% on the entire US economy of imports, which is not a small thing. We have two comments from our readers. And Scott and Alexis, I'd love for you to get your thoughts. At McHale from USA, it says tariffs are going to hit companies to affect the markets. And on the other side of that, at Lerpunen disagrees and says markets will continue to go up as prices, expensive costs have passed along. So Scott, I think it's an interesting question. We know that tariffs are paid by consumers, ultimately, and that businesses can absorb and keep some of them. So who's right? Does this affect earnings and ultimately affect stock market? Or does the market breeze through it and say, well, the stocks will keep going higher because they will pass the costs on? How do you think about it? I think it's going to be a mixed bag. We saw Ford come out and talk about taking a pretty big write down, I guess. Even though they assemble most of the cars here in America, they get a lot of component parts from Mexico and Canada. So that was a bit of a negative for them. My guess is there'll be some adjustments made there. I think there's going to be unintended consequences whenever you have tariffs. And I think the one thing about most of these deals we're hearing about, there's still frameworks, even though they're giving us ranges, they're still just ranges. So I think there'll be some adjustments as we go. I think it's a wait and see. I don't think tariffs in the big picture are a great thing. Obviously, they're friction. But I think that if they're done thoughtfully, and so far they started with the scattergun approach, they seem like they're narrowing it down. There seems to be more agreement out there. I'm cautiously optimistic. I don't think it's going to be a terrible thing. I think we'll be okay. And Alexis, I am seeing a much more muted response, even today. Look, it's an ugly day. We're down 650 on the Dow. Maybe we'll recover a little bit. But it's almost nothing compared to what we experienced in April. And now they're real and they're really hitting. So it does feel like people have given the Trump administration basically a tacit wink that it's you appear to be doing this to improve the economic trade imbalance rather than to collect a bunch of money. Do you agree with that? Yeah, it's an interesting point. And I think back in April, the worst case scenario was ultimately taken off the table. And I think that whole reaction, both to the downside and the recovery that we saw, maybe happened faster than expected. But I do think, to Scott's point, there's uncertainty that is still out there. You're hearing commentary from different companies during their earnings calls about the impacts or expected impacts or just the sheer uncertainty where it's going to show up somewhere. And I think three outcomes are really out there, where the first, companies absorb it as much as they can, which is going to hurt margins and growth. Secondly, maybe they pass it on to consumers, which fuels inflation. Not good. Or maybe they continue to slow hiring or take additional layoffs, which also will show up in the broader economy. So as much as the worst case scenario seems to be off the table and will probably be OK, if we do end up with a 15 percent effective tariff rate, that's a real number that didn't used to exist. So it has to show up somewhere. And I think it just it's a matter of time until those cracks become more evident. And I think, again, that basically Mikhail from USA and Lerpunen, I think you can both be right. It can affect earnings. It can mean certain stocks won't do well. And it can also mean that the stock market in general could still go up. So I do think they are going to be winners and losers. And on that subject, Alexis, Robert in Oklahoma City asked the question, every day the story on stagflation changes. Just this week, you saw a series that we're going to pass it just fine. And then the next day after tariff and unemployment news, it's oh, my gosh, stagflation talk is back. I think we're kind of right there teetering, right, where we have a very meh economy of roughly 1 percent. We have inflation that's still higher than the economic growth rate. So we are flirting with stagflation. Does it even matter? Should you spend any time looking at that? Yeah, I mean, stagflation matters. You know, it's not a great environment to be in. And I do think that has been the fear and sort of the theme that everyone is looking out to. The combination of rising prices and weak growth is exactly what stagflation means. And I think, you know, recession probabilities across the board have really come down quite a bit, to my point earlier about the worst case scenario being off the table for the tariffs. But I think the stagflation remains a real concern because prices can stay high even even though economic growth is slowing. And that is definitely still on the table and worth watching. OK, so last question is, I think, a perfect one for you, Scott. This is from Tony in Dallas. He owns a wholesale and distribution company, hot place to be in this tariff environment. And he estimates that most of the tariffs will affect his sector. And he's worried about losing customers as he raises his costs. But he does have a small amount of cash for an emergency. He wants to know how many months should he have in reserve. What would you suggest as a wealth manager? What should he have both in his business and on a personal level? Yeah, I think that, look, we spend a lot of time with our clients on our quarterly reviews talking about cash flow. What do you have coming up, whether it's for your business or whether it's your personal? Look, on a personal level, I think everybody should have six to 12 months worth of expenses kind of in liquidity. If you've got anything coming up, though, if it's personal, maybe you've got a daughter getting married or kids going off to college or, you know, a project around your home. I think I think everybody right now should be looking and seeing what do I have coming up in the next 12 months? And they should have that cash available. This market's at a high level. I mean, I've gotten a couple of messages, emails from clients this morning asking me, Oh, my God, the market's down one and a quarter, one and a half. I mean, we're at all time highs three days ago, right? Right. We're at record levels of the markets. People are very concerned about valuations. And I'm not being negative when I say that. It's just a fact. No, today's not a buying opportunity. You know, the market's at a higher level. It's going to come back a little bit. But I think more importantly than that, you need to recognize that you don't want to be in a position where the market does come down and something comes up in your life. You need liquidity. You don't want to be selling stocks. So for our friend in Dallas, you know, be mindful that maybe this is a time to have a little extra cash on the sidelines or, you know, operating your business or, you know, running your household. That's. And if you've got a bunch of money in stocks, it's like liquidity is a function that you really need to consider. And it's OK to miss out if you sell five or 10 percent of your portfolio to just know that you have it available, because the worst thing that could happen is at the worst time that your business needs a cash flow, the stock market goes down and you're not selling one and a half percent from the peak. You're selling when the markets are down 20 percent. So I completely agree with you. Having a cash cushion allows you to ride out the declines in the market. So it's it's also a very good mental accounting to just when the market is giving you a gift from heaven and you're up 10 or 15 or 20 percent, take a little off the because, again, you're going to be happy that you did it, even if you don't participate with that little bit you took off with the ensuing gains. So, yeah, rebalancing, building up your cash reserves, never any harm in that. So thank you, everyone. We're going to talk a little bit about next week. Alexis, we've got a lot of data coming out next week. Anything you're keeping your eye on? Yeah. So we're in the midst of earnings season, which will be really key. As I mentioned earlier, Meta, Microsoft, all of the A.I. powered giants have done incredibly well. But I think what will be interesting is how the rest of the market responds, what the forward looking guidance looks like, what the commentary looks like as it relates to tariff impacts and rising supply chain costs and how all of these elements are making way into what the back half of the year will ultimately look like. As we've talked about, valuations are very rich. The S&P is trading at about 24 times. And I think the markets are vulnerable. And we'll see whether or not the A.I. powered trade can uphold the markets further or if the market is more reactionary to some of the other company earning reports this quarter. And so, Scott, also next week, we've got the Atlanta Fed President Raphael Bostic speaking. I know we have two Fed governors that actually wanted to drop rates. So that's the first time we've seen some dissent from some of the board governors. Maybe they're angling for the chief job. But how do you think about it? What would a Fed drop in interest rates? I think they're starting to actually price in a September drop here. And I suspect nothing's going to happen in advance of that. But what happens if they drop at 25 or 50 basis points in September? Yeah, I think a lot of people expect they will. There does seem to be a bit of animus between the current head of the Fed and the president. So that's always the wild card here. But we're also focused on Fed fund rates. And if they drop the Fed fund rate by 25 basis points, it's probably not a bad thing. At the end of the day, though, most things that matter to our clients and matter to the markets are more about what's going on in the 10-year Treasury yield, which has more to do with what's going on in the market. So yeah, we'll get a 25 basis point drop likely in September. I think that's the consensus. I don't think it's going to move the needle much. It's already baked in. I don't think the market takes off on that news. I think people are more focused on sort of the 10-year at this point. And we've got last thing, pharma earnings. I think that's the big slate for next week. Anything you're expecting, Scott? We like that space, guys. I mean, we like healthcare. We like pharma. Not the whole basket, either on the pharma side or the healthcare side. But the growth-oriented pharma companies that have been sort of thrown out with the bathwater here, we like. We also like the life science tool space within healthcare, medical technology. There's some names out there. Whenever there's something going on top line news-wise in any sector of the market, what's going to happen is you're going to have stocks that are unfairly punished, because everybody sort of looks at the whole basket as one. And when we have that situation, we have opportunity. And when we look at how expensive technology stocks have gotten and the AI trade has gotten so crowded, we're looking at areas where things are not loved and they've been beat down and valuations are lower. So yeah, we like a lot of these pharma companies. I also find it amazing because how can AI not benefit these pharma companies? They're going to have all kinds of wild innovations because of AI. So again, I think we're so focused on the infrastructure of AI, we don't think enough about who's going to benefit the most from the application of AI. And pharma is a great beneficiary because there's all kinds of novel approaches that are only happening because AI is making the interconnectivity. Anyway, it's been a great show. Thank you, Alexis. Thank you, Scott. Just as a reminder, we love your comments. We love your questions. They really make the show a lot easier to do and a lot more interesting when we're answering real questions. So either just write it in the dropbox in the comments section. Please obviously share with your friends if you like this. You're welcome to share the link. And if you would like a review of your portfolio, the team at one point will do that. If you just go to Wealthion.com forward slash free, you'll get a portfolio of the review. It just assesses how things look, what items you might want to identify as risk items in your portfolio. Lastly, I hope you have a great weekend. And we've been doing these shows on Thursday. I know today was a Friday. And I am really looking forward to having Terry back next week. So thank you, everyone. And thanks, Scott. Thanks, Alexis. Have a great day. Thanks, Joe. Appreciate it. Thanks, Joe.