The Art of Being Ready: Unlocking Opportunities in What’s Ahead

Lindsey, we have a big week ahead of us and I'm so glad we're able to talk with everybody a little earlier in the week. Yeah, it's the end of the march quarter. We have a sea of March economic data points that will tell us about the vector, the velocity of the economy, potentially stagflation.

We get the, the big man himself. No, not Trump. But Fed Chair Powell, and we have April 2nd Liberation Day, so we've got a lot to cover. But before we get there, Lindsey, how are you doing?

[00:00:55] Lindsey Bell: I mean, I'm hanging in there. This market volatility has, you know, me just a little scattered brained as everybody else. So trying to, uh, parse through, parse through the data to, uh, separate the facts from the feelings, I guess here.

[00:01:10] Chris Versace: I, you know, I, I did a video for the Street Pro this morning and I just said, folks, you know, we've really got to check emotion at the door. I know it's hard. Uh, there's a lot of uncertainty in the marketplace and, and as we'll talk in, in, in a little bit, Lindsey, we've actually been raising cash in the portfolio just given all this uncertainty so far, but I think there's a lot more to come, so, but let's, let's talk about what we're gonna chitty chat today.

Um, couple big things. Uh, one, all that economic data coming this week and potential stagflation, maybe we'll talk about it. Uh. Tariffs. Uh, and of course, uh, we'll touch on, uh, DOGE as we do that, and then finally rounding it all out. Uh, we're gonna wrap it up and give you some advice, so stay tuned.   

All right, folks, we are back with this, uh, episode of the, what Does It Mean Podcast, Lindsey. I'm gonna turn it over to you. Um, we've got a lot of economic data coming, but before we dig into that, were you surprised at this, uh, growing wave of S&P 500 price target cuts? We've gotten Goldman, your Dini research, UBS, Barclays, and I'm sure there's several more out there.

[00:02:24] Lindsey Bell: Yeah, no, I think there's, there's plenty of numbers that are coming down and I think for Goldman, it was the second time in one month that they reduced their price target. And I think it's just from their perspective, they're trying to be prudent amid, uh, this persistent pessimism I guess, that we have in this marketplace.

Um, as you and I have discussed before, it's very hard to predict where it's like predicting the weather. Where the S&P 500 is gonna be on December 31st. Do you know what the temperature is gonna be on December 31st? But I think, but that being said, I do think that, uh, strategists across Wall Street economists, et cetera, are starting to just become more cautious, um, in, in light of the uncertainty around tariffs.

Because I think the realization is that while we've been waiting for the April 2nd announcement, the, the fact of the matter is, is it's unlikely to, to provide this clarity to the market about where, where we, the economy and tariffs and everything is gonna go from here. So I'm not necessarily surprised.

You're starting to also see recession risk numbers creep up a bit for, for Goldman Sachs, they took it up to 35% from 20%, which still isn't. Like, it's not this crazy number. Um, and economists by the way, and market strategists haven't been that great at predicting recessions over the past several years. I mean, all you have to do is, I mean, just point to, to 2024, right?

[00:03:47] Chris Versace: Yes. Yeah. I mean, they, I think they miss it more than like the weathermen. Right. And, and the reason being is you can only really tell that you've been in a recession as you start to come out of a recession. So it, it is extremely easy to miss. But, you know, it's funny you make that point about Goldman's numbers and I'm like, oh, 25% to 35%, oh, well that means there's still at least a 65% chance that we don't have a recession.

Hmm. So, yeah, I think it's gonna be, um. I think it's gonna be a challenging next couple of weeks. I'm not surprised by these S&P 500, uh, EPS expectations for 2025 coming down. You and I have talked about, you know, several weeks ago why I thought they were a little aggressive. But it is interesting to me that, you know, we've gone through,

you know, a bunch of data that kind of indicated things were starting to soften, and it's only now as we close out the quarter that they're doing this. Um, I wouldn't be surprised if there's another leg down once we actually move through the March quarter earnings season. But, um. Like I mentioned, Lindsey, we have a lot of data to chew through this week, ISM, uh, March PMIs, both manufacturing and services, ADP uh, employment report, the Challenger job Cuts report, the March employment report.

Is there any one of those, right, that you will be focusing on more than the others? Because, here's a little secret. I have one and I will happily share my answer with you once you tell me what yours is.

[00:05:17] Lindsey Bell: Well, I'm, I'm gonna be taking it all in, but I guess, you know, this is tit for tat over here. No. What I, what I'm gonna be looking at, obviously, as you probably know, what I'm gonna say is the jobs report.

Um while it's supposed to still be decent and wages are expected to continue to rise, um. I think that it's, there's an interesting dynamic happening in the job market and what you're seeing is you're seeing a slowdown in hiring. Everybody's worried about what's happening. Um, from a government, federal government job perspective, we should be able to see a little more of that impact in this month's report.

Um, and. Really at the center of our economy as the consumer. So I think we need to do a good job of understanding where wages are coming from, where they're going to, who's hiring, who's not. I think there's been a massive stagnation in job movement. Uh, if we, if you looked recently, what we saw was that wage growth for job stayers and job leavers are about at par.

You used job leavers that's used, that's how you used to get raises. Right, right, right. So that's what I'm gonna be watching. What are you watching?

[00:06:23] Chris Versace: Well, you know, normally this time around it would be the ISM data really to get a sense on that vector velocity of the economy. But just given the consumer uncertainty and the announcements that we've been hearing, it's actually gonna be the Challenger job Cuts report.

If you remember back in February, we saw like an eye popping number of like 172,000, uh, plus or minus, uh, folks being let go. And about a third of that, if I remember correctly, they were chalking up to DOGE. So then I think about everything that we've seen in the month of March, and I'm like, boy, you know, there is a chance that number could be higher.

And if it is, I think it makes headlines and it throws a lot of, you know, a lot of caution to the consumer that's, we're already hearing a lot about the consumer kind of pulling back, you know, and it's understandable, just given the amount of uncertainty out there, you know, layoffs, tariffs, you know, um, and all these other headlines.

But like you and I talked about, when it comes to the consumer, you know, if they're worried, it becomes almost a self-fulfilling prophecy. Right for a slowdown. So, uh, that's, that's what I'll be watching this week.

[00:07:29] Lindsey Bell: Yeah, and I think sentiment, you're seeing that in the sentiment numbers, right? We've got Michigan at the end of last week and the conference board, and you saw expectations from the consumer about jobs, the economy, et cetera, really decline quite sharply.

Um, and so I think that the consumer, this is top of mind for consumers. So seeing any layoff numbers are certainly going to make the consumer more nervous. They're gonna think about how does this impact me from my own job security perspective? And because of that, they might reign, reign in spending. What we did get out of the PCE report last week was the fact that while wages increased above the rate of inflation, you know what consumers were saving more.

Chris, we saw the savings.

[00:08:11] Chris Versace: Well, but that fit. But, but, but that fits, doesn't it? They're nervous. They're, they're not gonna spend, they're actually gonna build up their cushion.

[00:08:20] Lindsey Bell: Yeah, no, exactly. So I think that the watching the consumer, you and I are watching the same thing, different parts. The only thing I'd say about the Challenger Jobs report is like the seasonality of it plays a role.

And also I think looking at it out from a bigger picture perspective, you know, one or two months of big numbers can sound scary and certainly it'll hit the news wires and consumers can get nervous. Um. But looking at it as a percent of the overall labor market and activity is, is gonna be important.

Because layoff activity has been very benign, um, over the last couple years.

[00:08:52] Chris Versace: No. Totally agree. Totally agree. But you know, it's not just the consumer, right? We are starting to see businesses dial back their spending as well. There was a data point from the Philly Fed's latest manufacturing business outlook, and this really jumped out to me, Lindsey.

And you know, back in October when they were talking about, um, you know, capital spending expectations for 2025, about 51% of those surveys said, yeah, we'll be spending more. And of course, you know, people were probably getting a little excited, you know, this is October, not after the election, but maybe there was some anticipation of what might happen.

Uh, but now those numbers. Down around 23%. That's pretty low. I mean, get cut in half. And I think about some of the other numbers that we've discussed, you know, in the last few weeks, like the NFIB's, uh, small Business Optimism Index and the uncertainty index that they have that's at record levels. You know, I, I see this and then it has me kind of concerned that capital spending levels are gonna decline.

Um, another headwind for the economy.

[00:09:57] Lindsey Bell: Yeah, I think it, it is a notable point because the consumer sentiment, we've been able to like brush, I don't wanna say brush it off, but we kind of have a little bit because economic data has been strong. That's the hard data versus soft, soft data argument. But now that you're starting to see it in business sentiment and consumer spending, um,

numbers, expectations. It just goes to show, businesses, which technically normally have a greater wherewithal than the consumer, right? Consumer only has one paycheck. Companies might have cash on their balance sheet. They might have access to more access to credit, so they can usually withstand a slow down a little bit further. But companies like the Fed are going into this wait and see mode, right? Um, and so that is, that is what the fear is about an economic slowdown is how does the, the do these sentiment soft data surveys translate into the hard data and it starts to translate into economic slowdown when people pull back their spending with people or businesses?

[00:10:52] Chris Versace: 100%.

[00:10:53] Lindsey Bell: And so that is, that's, that is an increasing concern.

[00:10:58] Chris Versace: So as you look at it, you know, there is that growing concern of a slowdown. We won't say recession yet, right, because, you know, we wanna be a, a little more thoughtful and careful. But, but, um, as you think it through and game things out, you know, given some of the data that we've seen on the inflation front, slower economy, are, are you kind of sitting back going, you know, the odds of stagflation emerging, they're kind of creeping up.

[00:11:25] Lindsey Bell: You know, you know me. I don't like the word stagflation.

[00:11:31] Chris Versace: I'm putting words in your mouth. I admit. I admit

[00:11:33] Lindsey Bell: It's not like this, right, we use, we throw the word stagflation around like it's a normal, not normal, but it's a, a thing that happens relatively.

[00:11:42] Chris Versace: It doesn't though. It doesn't.

[00:11:43] Lindsey Bell: It doesn't. That's my point.

It doesn't happen. So this would be abnormal. Um, and it's not a great. It's not a great thing for the economy of markets. Right. Um, what I think about when I look about look forward is I look at where we're coming from. You know, take a quick look back that we're coming from an economy that was increasing 3% or greater for five to the last 10 quarters.

You know, and I know things can slow down pretty quickly, but you've got a consumer that has been resilient, still is earning income, has a job, you'd have wages increasing and they tend to spend in that environment. Again, it goes back to the conversation is how long does this uncertainty persist? Then that can, can translate into other, can translate into a slowdown in spending.

Um, but I also look at operating margins. When we talk, I know we're gonna talk about tariffs, but corporations, you know, expected to reach 17% operating margins in 2025. That would be an all time high. So usually,

[00:12:39] Chris Versace: yeah, that's not, that's, I'll tell you right now, that's not gonna happen.

[00:12:43] Lindsey Bell: I know, but the point is, even before that, we're at, you know, we're near all time highs right now. And so we, the point is we have room companies have room to absorb these tariffs. Um, and so not that, you know, they have to think about do they absorb them? Do they pass 'em onto the consumer? Do they pass 'em onto their suppliers? And that is TBD, and I I think the longer this negotiating through tariffs goes on, the more uncertainty and then that impacts the economy.

And one thing that seems to be sure is that prices are going up while consumers and businesses are wait and see and slowing, which means growth is slowing. Right. So there, there you get stagflation.

[00:13:21] Chris Versace: Yeah. So kind of on that point about margins, you know, uh, was it, I think it was Lululemon last week. They said that in their forward guidance they've baked in 20 basis points relating to tariffs that up to that point had been announced on, I think China and Mexico. So that's a relatively small amount. But I, I do think that as we go through this week, and we'll, we'll talk about it in a second, um, you know, we're gonna learn a lot more on the tariff front, both those emanating from the US and those that are likely to get slapped onto the US and, you know, I, I think that's a great transition point, Lindsey, to talk about April 2nd.

Liberation Day as President Trump calls it. Um, you know, I, I gotta be honest with you, kind of, um, at the end of last week, there was a lot of talk of, oh, they won't be that bad. You know, blah, blah, blah. And then over the weekend there were reports that, nope. Across the board 20%. And I, I just don't think people have any idea of what's coming.

[00:14:25] Lindsey Bell: I think that's the exact point is nobody knows. So how are you gonna react as an investor, as, as a market participant? You're seeing the market move lower, uh, because of the uncertainty. There's back and forth. There's on again, there's off again. Nobody knows, so you can't, how do you model that? We're used to looking at numbers and figuring out where we go based on expectations, and you just really can't do that. And it gets back to the beginning of our conversation, why estimates are coming down for S&P 500 targets for, for year end, just because of this elevated level of uncertainty. But I think when you look at the market and you think about tariffs, um, you know, if, if they're severe, of course presumably they slow down global economic growth, right? Not just the US and prices could, market prices can come down significantly lower if that's the case, and they remain on for a long period of time. Um, but if you look back to 2018, I always point to, it doesn't mean that we're gonna get through this in a quick and easy way. But 2018 tariffs were put on early in the year, and they were like, they were, uh, most of them were pulled back in mid 2019.

And what you saw was, yes, the market was down in 2018, rebound in 2019, economic growth was 3% in 2018, GD or uh, uh. Earnings growth was double digits. So, I mean, I don't know, it just, it depends. There's so many way the pendulum can swing very far one way or the other, as we've talked about in the past.

[00:15:50] Chris Versace: I think what's different this time around is the degree of tariffs that we could get.

You remember back then it was really predominantly the US and China kind of going back and forth. This is, this is much different and we're hearing, you know, from Canada, from the European Union and others that they are gonna have to revisit their relationship with the United States. There will be reciprocal tariffs.

Um, you know, I think Christine Lagarde was saying that, you know, it might be time for the European Union to really think about sourcing its, uh, defense equipment inside the European Union. So there, there's a lot of things that can happen and I think that adds the uncertainty. But it, it's, I, I think what I'm more most concerned about is folks only thinking about what Trump is going to say.

Right, because there's a whole other shoe that we need to watch when it drops, whether it's, you know, again, China, Canada, European Union or, or some of these others. And whether it's industry specific, whether it's a little more general, the size, I mean, there's so many factors and I'll go out on a limb and say, I don't think we're gonna know all, you know, really what this picture is until sometime early next week.

[00:17:03] Lindsey Bell: No, I, I don't even think we're gonna know then. I think that we're, it's gonna take time to develop, hopefully sooner rather than later. And then, and then once we get to wherever the sticking point is, I think we need to quickly shift to some of the pro-growth policies if we want to see the economy and the market turn around. But that's not gonna, we're not gonna get through this until June, July, um, to the other side of these policies.

So we've been focused on the very hard policies, uh, upfront rather than the ones that were, you know, Trump ran on that were supposed to be the pro growth, uh, boost the economy type of policies.

[00:17:40] Chris Versace: Right, 100%. And I think there's some elections going on that we've gotta pay a little attention to as well that could kind of alter the playing field and could jeopardize, or at least call into question, let's call it, um, the prospect for tax cuts.

So that, that's gonna be a big deal to watch. Um, you know, Lindsey, just slap your, uh, equity analyst hat on for a second. Um. Do you think the market trades sideways through earning season? Or maybe, you know, as these numbers come down, there might be a little more risk?

[00:18:14] Lindsey Bell: Um, I think the market's gonna be more focused on tariff news, an announcement than what actual earnings are.

Sad to say. I think that if you do get a large number of companies becoming extremely cautious, reducing their outlook. Their outlook will move markets lower. But if companies are beating, even if they're missing the current quarter, I think that the market's going to ignore it. What's gonna take, what's gonna take center stage is, what we've seen in the past, it's really gonna be tariff news.

And then behind that I think is gonna be interest rate news, monetary policy. And so I think it's. You know, we're gonna listen to the Fed and we're gonna listen to the Trump administration first and foremost, when it comes to market moves. What do you think? Am I wrong?

[00:18:57] Chris Versace: All your, well, I will say that if we were to think like in a very short timeframe, right?

You're a hundred percent right. It's going to be what we learn on tariffs, what J Powell has to say on Friday, uh, about all of this. And remember, he's gonna be talking after all of the economic data we get this week and after, at least we hear from Trump on tariffs, maybe some early reactions from these other countries.

So I do think that the market's gonna be really paying close attention to what he has to say. But if this ISM data shows that inflation is perking up, I think his hands are gonna be tied, really. But, but we'll have to see. But, but if we stretch out past this week. Then I think earnings really the guidance for the June quarter is gonna come into focus.

And if that really starts to disappoint, then I think people are gonna get nervous all over again. And just, you know, I know the S&P 500 line that we need to retest, uh, potentially to find the bottom is 5,500, but if we break through that, the next level's around 5,400 and then we have to be a little more careful.

So I think that, um, you know, I hate to say it, Lindsey, it's uh, it's as clear as mud out there.

[00:20:10] Lindsey Bell: It's clear as mud. I will say, I'll just give you a data point to, to kind of support what you just said, which is that more than 600 times during quarterly earnings call the S&P five, uh, for S&P 500 companies.

Um, tariffs have been mentioned since Trump took office, so that Oh, of course. Bloomberg today. So.

[00:20:30] Chris Versace: Well, you gotta be careful with those headlines, right? Because I think FactSet had a headline, um, this was a couple weeks ago. They were like, December quarter earnings conference calls contain the greatest mention of AI in the last 10 years.

And I'm thinking to myself, well, of course. Were we talking about AI 10 years ago, eight years ago, five years ago? You know, so you, you gotta be a little careful with these headlines, I think. But, but I think you're absolutely right though. Tariffs are gonna be, tariffs are gonna be a big topic, and then the impact of the tariffs will be kind of the follow through that we have to watch for.

Um, anything you're, you know, hoping that Powell says on, uh, Friday, Lindsey?

[00:21:11] Lindsey Bell: Uh, I honestly don't think he can say much. I think he's just gonna be a, we're wait and see mode making, looking for a signal through the noise. Like, you know, I think he's gonna defend his transitory stance with regards to tariff related inflation.

Like, I, I don't think, what can he say that's new?

[00:21:31] Chris Versace: Unless I, you know,

[00:21:33] Lindsey Bell: I was gonna say, unless we get a really weak job number on Friday.

[00:21:39] Chris Versace: I think, I think it's gonna take an amalgamation of weak data. You know, the ISM let, let, let's just say the ISM, PMI numbers for manufacturing and services are both below 50, right?

If we get that. If the ADP number is weak, if the Challenger Job Cuts number is high and we get an employment report that is, call it, I don't know, sub a hundred thousand, you know, below 50,000, I, I think would really kind of scare people if we get that. Maybe that gives him a little wiggle room, but if the inflation numbers are still high, uh, it's gonna be a tough one to call.

[00:22:13] Lindsey Bell: Yeah, that's fair. It's gonna be more than one data point, but there's a lot. 100 per lot to move through this week.

[00:22:20] Chris Versace: 100%. There is no silver bullet. All right, folks, when Lindsey and I come back, typically we talk about, um, what stood out to us in our conversation, but this time we're gonna shake it up, be right back. 

All right, Lindsey, let's wrap up this, this podcast. 'cause we gave folks a lot to chew on and normally as, as I said a minute ago, we like to kind of, you know, hey, what stood out to you. But I, I'd like to shake it up because this is a really big week for folks and a lot can happen. A lot can you know that stuff?

It can go sideways. So, um. Do you have any advice to folks that you want to say about times like this in the market? Something that they should, you know, contemplate rules of thumb, you know, whatever you want to call it. 'cause you know, we've been around the block.

[00:23:10] Lindsey Bell: Yeah, I mean there's a couple things that I think about is, you know, the market's flirting with, you know, at the end of last week flirting with correct S&P 500 entering correction territory yet again for the second time this year, the NASDAQ's pretty much spent the month of March in correction territory.

And what I would say is the average correction in the market is about 14% and it can feel really uncomfortable and it can feel like you're taking the elevator down, especially in this instance of a correction. Um, and the recovery can take longer, right? But usually recoveries are shorter than we think, than our memory allows. The average recovery from a correction, which is by the way, for for note a correction, is a, a decline of 10% to about 20% from the most recent peak in the market.

And so, what we usually see is a recovery takes about four months on average. Um, and, and we saw that in the last several pullbacks where there was 20, the end of 2022, with, which was another tech driven growth, scare, pullback, whether even the pandemic driven, you know, recession that we saw. That was like a very unique example.

But the point is, is that. Staying in the market through periods of uncertainty is typically the best way to manage through periods like this. It can feel really, really uncomfortable. But what I will say is that if you pull out after a 2% day like we saw last week, and you're waiting for the market to smooth out before you get back in, you're gonna miss some of the best days in the market, and that's gonna significantly impact your long-term returns.

So again, it's. It's really time in the market, not timing the market. Even the smartest professionals in this business can't time the market right. What, what would you say, Chris?

[00:24:56] Chris Versace: I would say that you are correct. Uh, but I would also add that as the landscape changes, you've gotta revisit, you know, what you own, right?

Double check that, the double check the thesis. You know, if, if we're getting concerned, like, like we talked about a few minutes ago about consumers kind of pulling back about businesses, pulling back on their spending or, and at the same time, if we're hearing that perhaps like auto tariffs, right? If you game out auto tariffs and it does slow car production, well cars are a big consumer of chips.

So you have to start, you know, asking yourself some questions like, geez, maybe, maybe we might have some excess capacity for semiconductors that we didn't think about. Maybe that slows capital spending. So you gotta, you know, kind of game these things out. And as you do, if you are kind of concerned, you know, that the thesis has changed, um, you know, it might be prudent to raise some cash, and I will hit Lindsey that we've been raising some cash in the Pro Portfolio.

Part of it is to be opportunistic for what's to come.

[00:26:04] Lindsey Bell: Yeah, no, I think that's really great advice. It's, it gets back at the point of having a balanced portfolio too. This is 2025 is gonna remind everybody of, of that, uh, and you've seen it through different sectors outperforming technology underperforming, even though it's been the lead over the last several years prior to this. You've seen bonds do well.

International parts of the market are doing better than the US. So yeah, your point is very well taken.

[00:26:30] Chris Versace: Well with that, Lindsey, before we close it out, I will tell you something about the Pro Portfolio. Um, you may not, you probably won't guess it, so I'll just tell you, um, the best performing position we have year to date.

You ready?

[00:26:43] Lindsey Bell: Ready.

[00:26:45] Chris Versace: Waste Management.

[00:26:47] Lindsey Bell: Wow.

[00:26:48] Chris Versace: Isn't that pretty interesting? But think about it, it's a service that people need. It has pricing power, right? Is it influenced by tariffs and trade? Certainly not. So it's kind of an interesting little, uh, sleeper position out there.

[00:27:01] Lindsey Bell: It's a, it's like a defensive position though, too.

[00:27:05] Chris Versace: Uh, it is, but there's some growth aspects to it in terms of pricing, uh, that they have the use of automation to streamline their trucks and drive cost out. And they also made this acquisition of Stericycle, which gets them into the medical waste business. So it's, it's, it's actually, you know, you would think that it's garbage, right?

Um, and you'd be like, oh, it's, you know, whatever. But I mean, you know what? People will pay whatever they have to, to get their garbage hauled away. And I think this cross between their, uh, residential waste business and the medical waste business, I think there, there's gonna be some cross marketing opportunities.

But, you know, um, we can talk more about that over at the Pro Portfolio. But folks between, uh, now and the next episode of the What Does It Mean Podcast, if you need to hear more from Lindsey Clearnomics, LinkedIn. LinkedIn, she's a champ. If you need me, you know where to find me. The Street Pro Portfolio. That's today's episode.

Thanks for listening.