The Market Update with EP Wealth Advisors Managing Director, Investments -
Adam Phillips, CFA^®, CAIA, CFP^®

Often quoted in major national media, Adam is a Chartered Financial Analyst (CFA^®), a CERTIFIED FINANCIAL PLANNER™ (CFP^®), and has been included on the Forbes NextGen Best-in-State Wealth Advisors 2019 list. He is a member of the CFA Society of Los Angeles and the CFA Institute. Adam helps establish asset allocation strategy as a member of the EP Wealth Investment Committee, which supports all EP Wealth Advisors and their clients. The Committee’s top-down approach to portfolio construction begins with an outlook on the economy’s likely direction, followed by the implications for different economic sectors and asset classes. This culminates in strategic selection of the individual stocks, bonds, mutual funds or other investments deemed most appropriate for each individual client’s portfolio.

Expecting the Unexpected as Earnings Season Begins 

The early days of the new year have delivered a clear message for investors: expect the unexpected. 

In just the past week, geopolitical concerns have surfaced across multiple regions, including Venezuela, Cuba, Colombia, Iran, and even Greenland. These developments serve as a reminder that global risks remain fluid and can emerge quickly, creating short-term market noise that investors must navigate. 

At the same time, we’ve seen renewed political attention on economic affordability here in the United States—particularly around housing. With this being a midterm election year, several recent announcements have focused on easing pressure for homebuyers. Among them is a proposal to ban large institutional investors from purchasing single-family homes, a segment that currently accounts for a relatively small but meaningful portion of U.S. housing demand. The intent is to reduce competition for individual buyers and help slow price pressures. 

Additional efforts aimed at housing affordability include a directive for government-sponsored entities Fannie Mae and Freddie Mac to purchase a significant amount of mortgage-backed securities, a move intended to help push mortgage rates lower. While it remains to be seen how effective these actions will be, they underscore the heightened focus on housing costs and economic conditions heading into an election year. 

Another headline drawing attention involves the Federal Reserve. The Fed has received a subpoena related to the renovation of its headquarters, a development widely viewed as politically motivated. In response, Fed Chair Jerome Powell publicly pushed back, emphasizing the central bank’s commitment to independent monetary policy and its focus on long-term economic stability rather than political pressure. With Chair Powell’s term set to expire in May and only a few policy meetings remaining, this dynamic adds another layer of uncertainty to the current environment. 

Against this backdrop of headlines and uncertainty, it’s important for investors to stay grounded in what ultimately drives long-term market performance: corporate earnings. 

Earnings season is now underway, beginning as usual with financial companies. By the end of this week, roughly one-third of financial firms in the S&P 500 will have reported results. Investors will be listening closely to management teams for insight into how they’re navigating key issues such as tariffs, artificial intelligence, geopolitical risks, hiring plans, and consumer demand. 

After several strong years for equity markets, valuations remain elevated. Continued earnings growth will be essential to justify those valuations and support further gains. Current expectations call for year-over-year earnings growth of approximately 7% to 8% for the quarter—a solid pace. Given recent history, there is potential for results to exceed expectations, as many companies have consistently delivered stronger-than-anticipated earnings in recent quarters. 

As always, markets will react to the data as it comes in. While short-term volatility is likely to persist amid shifting headlines, maintaining a focus on fundamentals remains key. 

If you have questions about how current market developments fit into your broader financial plan, please reach out to your financial advisor. 

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Video Summary: 

Adam Phillips:

Well, if there's any takeaway so far for investors this year, it's that we should expect the unexpected. Just in the last week, we saw news out of Venezuela. We saw the geopolitical risks and concerns spread to Cuba, to Colombia, Iran, and Greenland. These are things that we're going to have to grapple with here in the coming weeks and perhaps months at home. 

We've received a reminder that this is a midterm election year. We've seen a number of announcements in the last few days that are targeted. At this affordability issue or lack thereof, here in the US, to just name a couple of things that caught my attention. Number one, President Trump announced a, here he proposed a ban on institutional purchases of single-family homes in the US. 

So right now, large institutional. Managers are purchasing homes. They account for just about two and a half percent of single-family home purchases here in the us but he's proposing that we stop altogether, that we ban them. And because this is driving up prices, it's driving up the demand for single-family homes and making it that much harder for individual home buyers. 

Staying on that housing theme, we also saw an announcement, and it was an order by President Trump for the government-sponsored entities. Fannie Mae and Freddie Mac to purchase $200 billion of mortgage bonds. Again, really aimed at improving affordability and driving down mortgage rates. We'll see to what extent this actually helps alleviate those costs on potential home buyers. 

But this is, again, just playing on that theme of this is a midterm election year. We know that housing has been a problem. Let's see what we can do. To help home buyers in this market. And then just in the last 24 hours, we received news that the Federal Reserve received a subpoena from the Department of Justice and is being investigated for the remodel of the Federal Reserve Building. 

Now, this is largely seen as politically motivated. Chairman Jay Powell, who has really been quiet and has taken the high road here over the last several months as we've seen signs of pressure from the White House, from the Trump administration on the Federal Reserve. He actually came out with a two-minute video. 

And said, look, this is not about this remodel. This is about our focus on what is actually the right course of monetary policy and not caving into the political demands, within the White House. And so this is a really interesting setup. We have not seen much like this in the past, and so we're seeing. 

Chair, chair, Jerome Powell really pushed back on this. I will just note his term expires in May. He only has three meetings left as fed chair, so you wonder if this is really worth it, but I think it just gets to this. This broader theme of doing what can be done to help drive down interest rates to stimulate the economy and support the housing market. 

So, this is really, really exciting, and as I said, look, we should expect the unexpected. For now, we're going to focus on the data, and I think that's so important that we don't know what headline is going to come out next. As investors, let's focus on what actually drives long-term stock performance. And that is earnings. 

And so coincidentally, we have a kickoff of earnings season. This week it starts as usual with the financial companies. By the end of this week, about a third of financial companies in the S&P 500 will have reported earnings. This is really important. I always say earnings season is important, you know, every quarter it's on the radar of investors. 

This one certainly is as well. And that's because we want to hear from management how they are approaching. Concerns around tariffs, around artificial intelligence, and other geopolitical concerns. What are their hiring plans? What are they seeing when it comes to consumption and demand from households? 

So it's really, really important. But we also know that after a few really strong years of returns in the S&P 500 and equity markets in general, valuations are quite elevated. And so we need. Earnings to continue to grow to justify these valuations and drive stocks higher from here. So for the year, or excuse me, for the quarter, on a year-over-year basis, we're looking at the S&P 500 delivering earnings growth of about seven or 8%. 

And that would be quite good. I would not, I would not be surprised to see the actual results come in quite a bit higher, just because we've seen that over the last. Several quarters. We've seen that these companies continue to beat expectations. And I think that's been one of the, one of the things that's been helping to drive stocks higher in recent months is that. 

That, that, we always, we're always on guard around earning season. And these companies just end up just leaping that hurdle, that earnings hurdle, and really delivering, on, on what we think are actually, pretty, good expectations. They end up surpassing them quite handily. So we'll look for more of the same this time around. 

Obviously, if actual results come in short of expectations, that'll, um, that'll mean something else for stocks. But we'll keep our fingers crossed as we enter earnings season here. I'll leave it there for right now. I'll look forward to talking to you next time. If you have any questions, please feel free to reach out to your financial advisor.