Latest / Markets with Megan: A Quick Financial Markets Update / Impact Report: Sell-Off Gains Speed, Now What? | S2 E019 | 03-10-25

Transcript

Impact Report: Sell-Off Gains Speed, Now What? | S2 E019 | 03-10-25 · Markets with Megan: A Quick Financial Markets Update

• 0:00
  Megan Horneman: It's been a brutal day for some US equity investors.
• 0:03
  Megan Horneman: It's Monday, march the 10th, and this is Markets with Megan.
• 0:05
  Megan Horneman: If you like this podcast, please subscribe, hit that alarm bell, share it with friends, family or colleagues.
• 0:11
  Megan Horneman: But we're here with you today for another impact report.
• 0:14
  Megan Horneman: We did this last week when the tariff rhetoric really started to create some volatility in the markets and start this sell-off.
• 0:20
  Megan Horneman: So let's kind of go through three different things what's happening, why it's happening and then what we see going forward.
• 0:28
  Megan Horneman: So what's happening?
• 0:29
  Megan Horneman: What happened today?
• 0:30
  Megan Horneman: We got a sell-off in the US tech area.
• 0:37
  Megan Horneman: That's just exacerbated as the day went on.
• 0:38
  Megan Horneman: We're looking at the NASDAQ, down about 4% just today alone.
• 0:40
  Megan Horneman: It's officially entered correction territory, which is a decline of 10% or more.
• 0:45
  Megan Horneman: When you look at volatility in the equity market as measured with the VIX index, you're looking at almost a 30% spike today alone.
• 0:54
  Megan Horneman: We're looking at volatility now.
• 0:56
  Megan Horneman: You have to go back to August of last year to see the highest level.
• 0:59
  Megan Horneman: And when you look at some other areas of the US equity market, you're looking at small and mid cap stocks that have taken a big brunt of this as well.
• 1:06
  Megan Horneman: All of the indices across the board in the US are lower, but if you look at the value side of the market, it held up a little bit better.
• 1:15
  Megan Horneman: But you are looking at a lot of profit taking in those high flying, expensive technology, ai related names.
• 1:23
  Megan Horneman: You're seeing people take profits there.
• 1:25
  Megan Horneman: So why, why is there this volatility pickup?
• 1:28
  Megan Horneman: Why is the market so weak?
• 1:30
  Megan Horneman: First of all, we talked about this in our first impact report.
• 1:33
  Megan Horneman: The uncertainty around tariffs is creating a lot of confusion for companies, whether it comes to investing, valuing, and then investors are having a hard time looking at what impact the tariffs may have on individual company earnings, and that's because the tariffs keep changing every day.
• 1:49
  Megan Horneman: But we had often said, when it comes to tariffs, if it's a one and done situation, the markets can handle that better.
• 1:56
  Megan Horneman: But we're seeing this back and forth and just uncertainty continue and could continue till we get you know again in the beginning of April when some of these decisions may be made with, specifically, mexico and Canada.
• 2:06
  Megan Horneman: The other reason is this tariff rhetoric and the new administration's policies is clashing with an US equity market that was already very expensive.
• 2:17
  Megan Horneman: You were looking at valuations and what we're talking about is price to earnings valuations that we're trading at some of the highest levels we've seen since the dot-com bubble.
• 2:25
  Megan Horneman: We have said a valuation correction may be in store.
• 2:29
  Megan Horneman: We're also seeing that the economic situation here in the US is deteriorating quicker than most had anticipated.
• 2:35
  Megan Horneman: When you look at things like manufacturing, when you look at things like the housing market, when you look at consumer confidence, all of these things are trading at levels that you would typically see leading up to a recession.
• 2:49
  Megan Horneman: The point that really got the market you know kind of the sell-off exacerbating was the employment report that we gave a podcast on last week.
• 2:58
  Megan Horneman: The employment report showed unemployment ticking up modestly, so we're now seeing this spill into some of those lagging indicators like the labor market.
• 3:06
  Megan Horneman: We're also seeing from an inflation standpoint that the Fed may not have as much flexibility as they anticipated this year, so that's creating a difficult time for investors.
• 3:17
  Megan Horneman: What does this mean going forward?
• 3:19
  Megan Horneman: Well, first of all, valuations in the US market, specifically in, specifically in US large cap, are not cheap enough.
• 3:26
  Megan Horneman: Yet I know that it looks painful on the headlines, the media is going to make a frenzy about it and it's not.
• 3:32
  Megan Horneman: That it's not down and, as we mentioned, nasdaq is down in correction territory but the valuation was so overvalued that this is getting to be a healthy correction.
• 3:43
  Megan Horneman: We're still looking at US large cap trading at a premium.
• 3:48
  Megan Horneman: Whether you look at value, whether you look at growth or the broad US large cap market in general, its price to earnings multiples are still trading at a premium compared to its trailing 15-year average.
• 3:59
  Megan Horneman: The only areas of the market in the US that are looking attractive at this point are small and mid-cap.
• 4:05
  Megan Horneman: Small and mid-cap, from its 52-week high, trading between 15% and 20% lower.
• 4:10
  Megan Horneman: So you're approaching bear market territory there, if you have.
• 4:15
  Megan Horneman: From an international perspective, international equities have held up much better than US markets.
• 4:20
  Megan Horneman: Again, this is as people are starting to rotate out of the high-flying MAG7 names.
• 4:26
  Megan Horneman: We've warned that this may happen.
• 4:28
  Megan Horneman: But what do we need to see in order to go ahead and add some more money into the equity market?
• 4:33
  Megan Horneman: First of all, if you have cash sitting on the sidelines that you haven't invested, it makes sense to start putting your toes in the water.
• 4:40
  Megan Horneman: Start investing, looking at small and mid-cap stocks, looking at international stocks.
• 4:45
  Megan Horneman: This is the area of the better valued but also pricing in some of this downside.
• 4:53
  Megan Horneman: So we'll continue to look at areas like that.
• 4:55
  Megan Horneman: We're not ready to jump into US large cap.
• 4:57
  Megan Horneman: We're not ready to jump into growth or technology.
• 5:00
  Megan Horneman: The valuations still are a bit too high.
• 5:02
  Megan Horneman: We'll also be looking just from other areas of the market.
• 5:06
  Megan Horneman: It's not just about equities.
• 5:07
  Megan Horneman: We also have a fixed income market that, from a yield level, yields have come down significantly.
• 5:12
  Megan Horneman: But if you look at things that take on risk credit investment grade high yield, we think that this is starting to widen out a bit.
• 5:19
  Megan Horneman: It still is not cheap, but we're watching that closely to put some of our cash to work Now.
• 5:25
  Megan Horneman: We think this volatility unfortunately is here to stay.
• 5:28
  Megan Horneman: The one thing we have not seen that would make us more comfortable to get aggressive into the sell-off is earnings revisions.
• 5:35
  Megan Horneman: We have barely seen earnings revisions budge for US large cap equities.
• 5:39
  Megan Horneman: They're down about a dollar for this year, so it's not reflecting the deteriorating economic situation that we're seeing.
• 5:46
  Megan Horneman: Once we start to see that, we think there'll be better valuations to enter here in the market we also have this week is a big inflation week from the economic calendar, so we'll be back to report on that and then again we'll keep looking at this very fluid situation from the White House.
• 6:03
  Megan Horneman: It's still very unclear, so we're not saying to invest all your money in today just because the tech stocks are down 10%.
• 6:09
  Megan Horneman: Instead, we're going to look to gradually add into this weakness, specifically in those areas of the market that may not only be better valued but reflecting the downside risk that we see in the coming months.
• 6:21
  Megan Horneman: That's all we have today.
• 6:22
  Megan Horneman: We'll be back again with more of these impact reports.
• 6:26
  Megan Horneman: We think they're important to keep you understanding where we are thinking and what we're seeing in the market.
• 6:31
  Megan Horneman: And, as always, if you have any comments, questions or feedbacks, please feel free to add that to where you get your podcast.
• 6:37
  Megan Horneman: Thanks again.
• 6:38
  Megan Horneman: If you want a further history of our podcast, you go to marketswithmegan.
• 6:42
  Megan Horneman: FM.
• 6:42
  Megan Horneman: Thank you.