With so many factors at work across markets, including interest rate cuts, rising national debt and election-related turmoil, positioning your portfolio can be difficult.
Roosevelt Bowman, senior investment strategist at Bernstein Private Wealth Management, joins Wealth! to dive deeper into these factors and explain what investors should consider in volatile markets.
“Given that private markets and limited partners' asset allocations are trending in the wrong direction, all of a sudden private assets are a much larger share of their portfolios than public assets because stocks and bonds have come under huge pressure in 2022. So it's forcing some firms to sell assets sooner than they would have liked. That's a big opportunity for us. I think it's a similar situation for banks,” Bowman told Yahoo Finance.
For more expert insights and the latest market trends, click here to watch this full episode of Wealth.
This post was written by Nicholas Giacobino
Video Transcript
The Dow is in negative territory.
The S&P 500 is up about two-tenths of a percent.
So what about the NASDAQ?
That was a rise of about 0.3 percent and a record gain for the major stock index this year.
And a lot of this is thanks to artificial intelligence.
So far in 2024, semiconductor stocks have accounted for 36% of the S&P 500's gains.
My next guest believes investors should invest in A. I'll be making trades this year to prepare for potential disruptions and discuss this.
Join us now with live color and in studio: Roosevelt Bowman, senior investment strategist, Bernstein Private Wealth Management.
I'm glad to meet you in person.
Thank you, Brad.
I appreciate it
absolutely.
So let's talk about some of the strategies from the first half, where, as I mentioned, the main theme was really generative AI.
Now, as we enter and begin the second half of the year, the focus is on what the biggest events that could move the markets will be.
Whether that's a Fed policy action that will ultimately indicate what the rate cutting cycle will look like, and whether that's an election-like action.
Going into these events, what factors do you foresee and how do you appropriately position your portfolio?
Yes, you know, I think we should start with expectations of what Fed policy and interest rates are going to be.
So we're expecting cuts at the end of the year.
As of December, the market estimates the likelihood of a rate cut in September to be around 75%.
That's probably too early.
It's possible.
But in reality, inflation needs to weaken and the labor market needs to get all sorted.
The story continues
If any of these go the wrong way, the cuts would be pushed back to December.
So I don't think the Fed is going to be talked about much.
In addition to Generative A, I think one of the other major factors has to do with the direction of Fed policy, meaning the Fed really sat on the sidelines in the fourth quarter of last year.
This has resulted in lower interest rate volatility, creating a very favorable environment for risk assets.
It also includes stocks, so I think that's another big factor.
I think both are still important.
You mentioned that big events happened in the second half of the year.
Obviously, everyone is paying attention to the election.
I think there are two reasons why these kinds of elections create instability.
If we look historically at the last 35 years, that's about a six-week period.
So, as strategic advisors to our clients, we don’t want to emphasize six weeks when thinking about long-term planning.
Of course, the other big question that comes up is debt, right?
Concerns about how much borrowing is happening in the US and whether that could push interest rates even higher.
You know, I think our view is not to focus on this sudden event of interest rates skyrocketing, but to think about the possibility that growth may decline a little bit in the future as a lot of tax revenues are dedicated to paying off creditors.
So in the case of the U.S. government, that's an interesting point on growth. Just to preface my next question on growth, one fact is that in the second quarter of 2024 data, as we're about to get into earnings season here, the S&P is expected to have year-over-year earnings growth of 508.8%.
And if that's the actual growth rate for the quarter, it would mark the highest year-over-year revenue growth reported by the index since the first quarter of 2022.
So we're hearing statistics like this, and as you mentioned, if there are areas where growth may slow going forward, how does that impact the growth trajectory going forward? In the near term, I expect revenue growth to probably slow a little bit more than that, but not by a large amount, but still be supportive.
What we're tracking are some trends when we look at the consumer, and potentially a decline in the quality of goods and purchasing power in certain consumer sectors.
And so far, the economy has been doing well for most of the last 18 months or so as wages continue to rise.
But the savings rate is only about 60% of its 20-year average, given that wages, while still strong, have slowed somewhat.
It could leave open the possibility that consumers might back out.
And that's why we expect growth to slow in the second half of the year.
Where are the opportunities now?
Specifically, when you think about other asset classes – global, private credit, real estate, debt, real estate equity – where are the selectable pieces of other asset classes where investors can have some sort of entry point?
at this point?
I think those are the three things we've really focused on with our clients.
So the main reason is the fact that interest rates have risen significantly in 2022 in a short period of time.
So when you think about private markets, limited partners, and essentially their asset allocations, they were tilted in the wrong direction, and that's what created this mess.
Suddenly, private assets became a much larger share of their portfolios than public assets.
That's because stocks and bonds have come under huge pressure in 2022, forcing some companies to sell their investments sooner than they would have liked.
That will be a huge opportunity for us.
I think it's a similar story with banks.
If you're a bank and you have poorly performing loans and you need to get them off your balance sheet, we at Bernstein are not a bank.
That is wonderful.
It's an opportunity for us to buy assets cheaply.
Whether we're talking about global private credit or whether we're talking about real estate.
Okay, let's wrap it up here.
Roosevelt, well, let's end on a happy note.
Here's what Olympic sports you'll be watching in the coming weeks.
Oh, it must be basketball, yeah, but I just, uh, hope my Lakers don't get hurt.
that's right.
There are a few competing here.
Roosevelt Bowman, senior N strategist at Bernstein Private Wealth Management, joins us in studio.
Thank you for your time.
Thank you, Brad.
I appreciate it