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.
Market Returns Year-To Date
Earnings Season Rolls On
GDP Report This Wednesday
Big Jobs Report Due Friday
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Video Transcription:
Rob Black
Welcome to long-term thinking weekly insights. I'm Rob Black, and joining me today is Adam Phillips, managing director of Investments at EP Wealth. Let's see, where are we? I guess the month of April is starting to wrap up. So we're getting through about a 3rd of the year. It feels like January, February, and March. April is about yeah. It's about a 3rd of the year, 4th of the year in that ballpark. Let's take a look at the year-to-date returns pretty interesting group. The winner, the Russell, 2,000 up, 2.9% for the year, the S&P Mid-Cap, 400, just down about 1%, not very much down 0 point 8 9 basis points. So not very much. Dow Jones Industrial Average down 5.7%, the S&P 500 down 6.1%. And the Nasdaq 100 is down 10.4%, a bit of a recovery last week off of Monday, when President Trump kind of cyberbullied Jerome Powell. But Tuesday, Wednesday, Thursday, and Friday were all recovery days on the market. What happened last week, Adam, and why the reversal of fortunes?
Adam Phillips
Yeah, look, the S. And p, 500 up, almost 5% on the week. So really strong bounce here, I think it goes back to what actually there was a slide that I shared in the most recent webinar, Rob, and it was talking about how volatility tends to cluster. You tend to see the best days in the market shortly after the worst days. Right? And so last week was another good example of that. We saw a really strong bounce, and it was really driven by a couple of things, both related to President Trump. The 1st was that after really going hard at Jay Powell, and leading many to wonder whether he was going to try to actively remove him from his position as Fed chair. He backed off that and said that he had no intention of removing him or forcing him out of that position. So the market certainly responded well to that. And the other thing was that President Trump took a little bit of a softer tone towards China, and really opened the door to some.
Some talks with them suggested that they were actively in conversation. Now China has said that no one's actually been in contact with them. So who knows what's actually going on? But President Trump and Treasury Secretary Scott Besson said that he knows that the current levels of tariffs are not sustainable, and they at some point need to come to some sort of an agreement. The market responded favorably to that.
Rob Black
So let's talk about it. We're in earnings season. We've got a couple of weeks into it, but this is a big one. I know that we got big names like Apple, Microsoft, Amazon, and Meta, part of the Magnificent 7 reporting this week, but also I see numbers from Eli Lilly, Coca-Cola, and others anything that you're expecting or anything that you're seeing so far in earnings. Season. Yeah. Well, what we've seen so far in earnings season is that most companies are beating. So north of 70% of companies are beating. That's really in line with what we normally see.
Adam Phillips
I think what's really more interesting is, as we've said, Rob, it's less about what companies did in the most recent quarter and what they see going forward. And so, even though most of the companies are beating expectations this time around, what we are seeing is that more than 60% are actually guiding down in terms of where they see their earnings going, and that doesn't even include those companies that are removing their guidance altogether, that are saying that they just have no clarity in this environment, and that was something that we mentioned we would be on the lookout for. So now we've seen it from the likes of Delta American Airlines, sketchers to name a few. And so I think that tells you just how hard it is for these businesses to operate in this environment, given all the uncertainty around us. So this week is a really big week. 20%. Those 4 companies that you mentioned for those 4 magnificent 7 companies. They account for 20% of the S&P 500. But besides them, another 20% of the S. And P. 500 reports this week. And so it really is a big week. We'll see how these companies actually do. We'll be looking out for the same things. What do they see going forward? Less about what they saw in the most recent quarter? But how are they adjusting their plans for, say, capital expenditures going forward? These, major companies that you listed Rob, are some of those that are really been expected to invest hundreds of billions in capital expenditures this year. And so the question will be, are those that still part of the plan given everything going on? And so that'll be really interesting. And then, obviously, we don't want to lose sight of the fact that there are a lot of companies outside of those 4 that you mentioned that are reporting, and so we'll be on the lookout for the same thing from them.
Rob Black
Sounds about right big economic data week as well, not just earnings. But we're also getting a lot of economic data. I think one of the more interesting ones that you brought up. We'll finish with jobs. But one of the more interesting ones we chatted about today was GDP. Numbers come out on Wednesday. What do we want to see in those GDP numbers? Is that the 1st quarter expectations?
Adam Phillips
It is. And so we're expecting that the growth to be very, very low. So in terms of annualized quarter-over-quarter growth, it's going to be fairly flat, I would say, coming off of closer to 2 and a half percent in the most recent quarter. So we're expecting quite a bit of weakness now a lot of that was driven by uncertainty, to be sure, in the 1st quarter. But we know things have only become more difficult so far here in the second quarter. And so, if it was that week to start the year, then obviously we want to manage our expectations accordingly, for this current quarter. So we'll see where it ultimately comes in. Just to talk about the fact of how tricky this operating environment is. A lot of people have been talking about really comparing today's environment to the supply chain disruptions that we saw during COVID-19 and talking about? Are we at risk of seeing empty shelves in the coming months? And a lot of this is really driven by data that we saw over in recent days about how the number of container ships that are leaving China heading to the US. It's fallen sharply down over 60%. And so we know that it takes. Let's call it a month for these container ships to arrive in the US. And then another couple of weeks for them to actually hit their final destination. Once they get loaded on the trucks or rail cars. So all of this uncertainty and the trade disruption that we're seeing with China and other major trading partners. It does lead to concerns about the potential for supply disruptions down the road. And so that is one of the reasons that yeah, this 1st quarter GDP number. It's looking in the rearview. And the thought right now is that even if it does come in positive, albeit modestly positive, the expectation is that if this situation continues, then we'll see. We could see potentially GDP actually slip into negative territory in the coming quarters. And that's what has really fed all these concerns around that R word, the recession. So this is one of the reasons we really need some trade resolution very soon.
Rob Black
Okay. So another component of our economy is the jobs report. If we have jobs, we tend to spend our paychecks. Some of us are living paycheck to paycheck, but we tend to spend that paycheck big number coming out on Friday. Is it something to watch, or is it something that's already built in?
Adam Phillips
It is something to watch for. Sure. You know I've seen estimates vary from, say, 100,000 in terms of job gains to 200,000. And it's just a tough environment to really predict where things are going. So we'll wait and see. I will say that if the number comes in closer to that 200,000 level which is really a very strong level in terms of monthly jobs growth that will mean that the Fed, is less inclined perhaps, to cut rates. And so over the last week, with that I mentioned the markets, cheered the comments from Trump that he had no intentions of seeking to remove Jay Powell from his position as fed chair. If the fed responds to this strong jobs number, if we see it on Friday and say, Well, now, that's even less of a reason for us to cut and provide some economic support in the form of lower interest. Rates will be President Trump. Then come back, and with some harsh language towards Jay Powell again. So even though he's kind of softened up over the last week, doesn't mean that Jay Powell is out of the woods, and the talk is over about challenges to the Fed's independence. So I think all of this is still very relevant. Even though we don't expect jobs to fall off a cliff, we'll be looking for some signs of deterioration there and softening in the labor market. So I think Friday is a very important number.
Rob Black
Is there anything else that you're working on? I always like to ask the softball strategy question whenever I have the managing director of investments on the show. Is there anything else that you're that? You know that I don't know that you think we should know.
Adam Phillips
You know. I think we covered a lot of it here, Rob, I think that this week we'll have a lot to catch up on next week this week is really going to be pretty interesting, and the only thing I'll mention is that some have asked me, does this? We've seen markets now recover about half of what they lost. We dipped down to close to 20%, at least on an intraday basis. We were down 20%. If you look at the S. And P. 500 from the all-time highs. So now we're about 10% off those all-time highs and just a few percent below where we were after the April second, Liberation Day announcement. And so we've recovered a lot of what we lost. The question is, are we out of the woods after last week's sharp rebound? Does this mean the worst of it's over? And I would just say that we certainly welcome a lot of the announcements and updates that we saw from the Administration last week. It doesn't mean that we're out of the woods. What we're going to be looking for in the weeks to come is we've seen evidence of soft data weakening, and that means consumer confidence and business confidence. We're starting to get this data for the month of April, and we move into May. This is when we start to be on the lookout for signs of an impact on the hard data. What is the actual real economy telling us? That is why this job number is so important. That's why a lot of the economic data that we're about to get over the coming weeks is going to be so important as far as informing our outlook for the economy and for the markets, and could move markets over the short term. And so those are some of the things that are on my mind.
Rob Black
Sounds good. Thanks very much for the informed investor market update. I'm Rob Black. He is Adam Phillips, managing director of investments at EP Wealth. Good day.