Investors got a ‘mulligan’ after market recovered from tariffs — what they should do next
The market’s remarkable one-month turnaround from the tariff-induced rout may have many investors wondering how to position themselves for what lies ahead. The S & P 500 is above the level it traded on April 2, when President Donald Trump detailed his sweeping tariff policy. Stocks tumbled in the wake of that announcement and remained rocky as the president walked back many of those levies and announced a pause for negotiations. The broad-based index is now up 1% year to date, as of Tuesday’s close — when it ended lower and snapped a six-day win streak. Stocks were down again on Wednesday as Treasury yields moved higher . .SPX YTD mountain S & P 500 year to date Many are warning the volatility will continue. On Monday, JPMorgan Chase CEO Jamie Dimon said the stock market is underappreciating the possibility of higher inflation and stagflation. “My own view is people feel pretty good because you haven’t seen effective tariffs,” he said during the bank’s annual investor day meeting. “The market came down 10%, [it’s] back up 10%. That’s an extraordinary amount of complacency.” Still, UBS Global Wealth Management recommends staying invested. It anticipates the S & P 500 will edge higher over the next 12 months and the 10-year Treasury yield will fall. “We believe phasing into the stock market can be an effective way to position for medium- and longer-term equity gains while managing timing risks, and capital preservation strategies can help navigate near-term risks of stock declines,” Mark Haefele, the firm’s chief investment officer at UBS Global Wealth Management, wrote in a note Wednesday. “Investors should also consider quality bonds, gold, and hedge funds to ensure portfolio diversification.” Wells Fargo Investment Institute suggests sticking with quality in this environment. “In our view, quality companies can help defend against market pullbacks by virtue of strong and stable profit margins, low debt, and steady cash flow. They also have the size and earnings potential to possibly outperform (‘play offense’) through choppier economic periods that put smaller peers under earnings pressure,” Scott Wren, the firm’s senior global market strategist, wrote in a note Wednesday. With that in mind, CNBC Pro reached out to financial professionals for advice on how investors should position themselves from here. Re-evaluate your risk profile If the market’s twists and turns kept investors awake at night, they probably have the wrong risk profile in their portfolios, said Nathan Hoyt, chief investment officer for Regent Peak Wealth Advisors. For those investors, the quick turnaround was a “gift,” he said. “Now they get to take a mulligan and get their risk profile back to where it should be,” he said. Mitchell Goldberg, president of ClientFirst Strategy, agrees. “We can have a 10% or 20% drop in the market at any given time for any reason and often we don’t even know the reason until some time has passed,” he said. “So it has to be baked into your investments that you have these drops.” Diversify away from tech With megacap tech encompassing a large part of the S & P 500, many mutual fund investors may have no idea how overexposed they are to technology stocks, Goldberg said. “The S & P 500 today is not your father’s S & P 500,” he said. “It is a much more concentrated portfolio.” Instead, Goldberg buys individual stocks for clients, making sure they are diversified in many different industries. “I don’t mind missing some upside because I am perfectly willing to do that to take on a little bit less risk when something goes wrong,” he said. The tech sector, which saw a meteoric rise in recent years, has been subject to bouts of volatility this year. Hit hard by tariffs, the so-called Magnificent 7 group of tech names added an aggregate $837.5 billion in market value last Monday after the United States and China agreed to suspend duties for 90 days on most goods. Add small caps For those investors comfortable with riding out market volatility, Hoyt suggests adding small-cap stocks. “The small cap sector still trades at a big discount to large caps,” he said. “They have some catching up to do.” The Russell 2000 Index , the small-cap benchmark, was the first to enter bear-market territory the day after tariffs were announced. The S & P 500 at one point also fell into bear-market territory during intraday trading in the post-tariff slide. A bear market is a 20% or more decline from a 52-week high. .RUT YTD mountain Russell 2000 Index While the Russell 2000 has also reversed course since last month’s bottom, it is still down about 6% year to date. Buy undervalued dividend stocks While the S & P 500 may have made it back to where it started pre-tariff announcement, many areas of the market have not, said Jenny Harrington, CEO of Gilman Hill Asset Management. “The market’s no longer riding a tide that will lift all ships,” she said. “Each ship needs to be able to sail on its own.” While earnings were better than expected and language on the calls regarding tariffs didn’t anticipate “Armageddon,” they reflect a “stale world order,” she noted. “We’re better off today than we were on April 4, but I would still argue that we’re worse off than we were on April 1,” said Harrington, whose strategy focuses on dividend income. Therefore, she is positioning portfolios with a very sensitive eye towards valuations. Two names she recently bought are Ethan Allen , which has a dividend yield of 5.8%, and Ryman Hospitality , a real estate investment trust that yields 4.65%. The former trades at 13x earnings and has zero debt, while the latter trades at 11x earnings, she said. She sees an improving competitive situation for Ethan Allen, which produces most of its furniture in North America. Ryman Hospitality has a transparent line of sight on future earnings but has been lumped in with hotel REITs that have sold off on concerns about the possibility of a recession, she said. Harrington also likes Disney , Cisco and Unilever . Invest in high-quality bonds Fixed-income markets will also be volatile, so investors should be selective, said Wells Fargo’s Wren. He favors high-quality investment-grade corporates, as well as general-obligation and essential-services municipal bonds . He prefers maturities in the range of three to seven years. Goldberg likes Treasurys and high-grade corporate bonds for fixed-income portfolios. Municipal bonds are attractive for wealthy investors, since munis are free of federal tax and, if the holder resides in the state in which the bond is issued, exempt from state tax, he said. He buys individual bonds rather than funds. “I know what the maturity is going to be and I can reinvest it according to a schedule,” Goldberg explained. “If interest rates go up appreciably, bond funds could be sitting on very long-term losses.” Use gold as a ballast Investors should look beyond typical fixed-income allocations and use gold as a hedge , according to David Miller, founder and chief investment officer at Catalyst Funds. The recent downgrade by Moody’s of the U.S. credit rating — and the mounting government deficit — is emblematic of the broader theme of de-dollarization and the need to diversify, he said. Investors have flocked to gold amid the market volatility this year, with gold futures rallying 23% so far this year. An April report from Morningstar found its diversified portfolio — which includes real estate investment trusts, gold, high yield bonds and global assets — was outperforming its “plain vanilla” portfolio of 60% U.S. stocks and 40% high-quality U.S. bonds so far this year. “Gold’s done a very good job of actually maintaining its purchasing power over the course of several decades, because nobody figured out how to print gold,” Miller said. “So it is a pretty good inflation hedge.” Bonds, on the other hand, lost about 30% of their purchasing power over the course of the last decade thanks to inflation, according to his calculations. He applies the same theory to stocks. He favors names that have pricing power in this environment, like a Visa or Mastercard . Both stocks get a percentage of every transaction, he said.
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