Latest / The MedTech Wealth Advisor Podcast / Markets Stay on Track (so far)
Transcript
- Matt: All right, well, welcome to the Q4 2026 market update. Matt and I are gonna have a little discussion here again as we have been making a habit of this so far and clients seem to enjoy it and and understand what we're what we're expecting, what we have on Outlook. and you know, if you're not a client, happy to to chat with you in the future, you know, give you a second opinion if you'd like. But Matt, let's just jump right in to this, get into to some of your thoughts. I'll see if I can add some commentary as we go. usually we do these recordings on the heels of you publishing an article, and we've got that out on the blog now. I think this one you know looks looks great. It's got a lot of great information and and some slides that are very helpful for our clients to understand what you're thinking. but looking back in January when we did this, you know, you called for a a positive but unspectacular 2026. you know, now that we're here in in almost October, how's that how's that feel like that's holding up? And is it working out as you expected? Has there been any changes to it? Matthew Finley: Yeah, you know, January we exactly we we thought it would be a positive, but not you know, a runaway year. Of course. the last two years were very strong years in the market beyond even what we were thinking last year as an example. This year we thought it would cool off a little bit and and we've seen that, but it has still been positive. we still have a target in the 7650 to 8,000 range for the SP 500 for year end. Right now, as of this recording, we're right at 7,700. I think that target is still within line with where we'll we'll end up. the disappointment on the year has been bonds. The Fed has now increased rates. when I wrote a couple weeks ago, they hadn't increased rates yet. They increased rates plus a number of other factors are causing bond yields to explode and therefore bond holdings to not perform well on the year. and coming into the year, not only us but a number of analysts were expecting that inflation would continue to drop, the Fed would be able to reduce rates later in the year. I held that position through mid-year. I I think even in the last quarterly update, I still thought the Fed had a chance to reduce rates, but again, the prolonged situation with oil and a few other factors have completely changed that. So that's the only part that I'd say is disappointing, but the market's right on track for where we were generally thinking it would be on the year. Matt: Yeah. Yeah. I mean, we haven't really gone that far materially. you know, since what has it been, since maybe June, we've almost had kind of a flat period. and I know some clients have have wondered, you know, just about about returns right in that period, but they don't quite realize how far we've come since beginning of the year. Just the last couple of quarters have seemed flat. So what maybe talk about that? What what was happening there causing that flat movement? Matthew Finley: Yeah, so you're right. Since June, markets have been mostly flat. The top end of the market, so your mega cap companies have actually underperformed on the year. And when the rest of the market cooled off from the surge of late spring, your Apple's and Googles and Amazons and Nvidia's didn't really go with that surge. and so as they cooled off, it's just kind of been flat line since June. I don't think that's gonna continue. I actually I actually think those companies are going to take off into the fourth quarter, maybe take leadership again in our stock market for a number of reasons we won't get into today. But the The big part of that, Matt, is that the multiples on the market have come down because the market's been flat. So instead of being in a in what some people would consider an overbought scenario at like a 21 or 22 forward price per earning multiple, we're sitting down at 19, which is right at the 10-year historical average. What that means for everybody listening to this is we're not overextended in the market. And typically at this type of multiple you would not see a recession on the near near term horizon. Matt: Interesting. And that maybe that speaks to Warsh's decision to increase rates a bit. Seemed unexpected though, but I guess I just maybe maybe fill me in a little bit more on that. Matthew Finley: Yeah, so energy's been the biggest component of inflation increase. The core components of inflation have continued to drop. So while you and I might not feel it in our daily lives, our clients probably don't feel it in our daily lives that inflation is is improving because of energy costs. so there was some speculation that they would not increase rates. The employment situation is also improving, which is the Fed's other mandate. So again, there was some basis that they may not increase rates and a lot of speculation at why they did, and it sounds like they are likely to do one more. that was their language last week. probably not much more than that. It's not typical that you would see rate increases with the data set that we have right now, but it has happened before. And just Again, not to get too deep into this dovetail, but there's speculation that they wanna let the economy run hot and that they have this opportunity to increase rates right now, maybe more performative than actual trying to cool things off. Matt: Sure. Is that that sets them up to be able to have the opportunity to reduce them later if they need to. Matthew Finley: reduce reduce faster when so for instance the Iran situation cools off, oil comes back down, that's gonna cut that component of inflation. And then you'll see the core inflation is already lowering. It'll give them a very big gap to reduce rates, possibly aggressively at that time. Matt: or more flexibility. Yeah. Well, you had called in the article I you'd called these some of the strongest earnings in modern history. and just, you know, for not everybody understands what that really means. So, you know, why do earnings matter so much in where the market's going? Matthew Finley: Yeah, so our fundamental belief here is that earnings dictate stock prices moving forward. And while the market does pre-run earnings, so if earnings come out today, the market's probably already priced in its expectations of that earnings for a few months out. but as forward guidance during earnings calls comes out and they're looking at 2027, even 2028 earnings, then the market will start adjusting to that. we've had spectacular earnings, which is part of the reason why last year's market was so high, was projecting that earnings today would be really strong, but they're even beating those projections. And so market continues to go up, and as forward earnings are reported, what they're expecting, then the markets move to that. So though that data is still trending higher. Which again fits into our thesis that the markets will continue to go higher for a little longer. Matt: Sure. Yeah, and I know that part of that was you you'd said that AI spending's heading toward a trillion dollars a year. Matthew Finley: Right. Matt: And so, you know, there's there's a constant question out there of you know, is this is it real build out? Is it a bubble? You just talked about earnings and forward speculation around that. How much of that is is real and sustainable? Matthew Finley: Yeah, so the the capital expenditure for AI build-out is hurting earnings to a degree, right? Because they're taking that money and spending it instead of having it hit as profit on the bottom line. but there's a race. There's a race to whatever AI is gonna get to. And so companies are spending wildly to to try to stay ahead or get ahead of the AI race. At some point in the probably not too distant future, we need to start seeing a return. on that investment, actual return on capital. Otherwise, companies will either have to reduce their spend, shift their spend, give up on it, you know, whatever whatever that's that's going to mean. And that will come and that's when I feel we will have a significant repricing in the market. It doesn't mean Matt: Interesting. What Matthew Finley: a recession, but you might, you know, like if you think of 2000 with the dot-com craze, there's companies that aren't around anymore that spend a ton of money. There's companies that are giants today that spend a ton of money. And I think we're Matt: See. Matthew Finley: gonna see similar with this AI race, you're gonna have companies that you think are pretty big today that you probably won't see five years from now or ten years from now. And then others will become dominant. Matt: Yeah, well that kind of that idea that might speak to some some side speculation around whether there's a bit of a collusion of some of these large tech companies to artificially slow down the race if that's the AI race, let's say, if that's real for real concern over human existence, or if it's actually maybe we should all back off together so it's not a a sudden stop in spending. I mean, how much validity do you think that theory has that's that's floating around the marketplace? Matthew Finley: Yeah, I actually think it it goes a little deeper than that. I I think it's a CYA scenario for some of these firms. They're trying to get legal protection Matt: Cover maybe. Matthew Finley: if if things don't go well. And that's just I mean it's it's a tale as old as time. Pharma's done it for generations, you know, big oil. car companies eight a hundred years ago, like they didn't want the liability of what they were creating. So in the name of slow down, we want protections. They're really just trying to cover their corporate irresponsibility, possibly. So Matt: Sure, sure, sure. W while it at the same time, it's easy to understand the the popularity of a of of where some of these conspiracies can go because there are there is some you know substantial risks we're facing with AI getting out of control for sure. But anyway, just interesting how that's playing out in the market in real time of Matthew Finley: It is com completely. but the administration and other bodies have made it very clear that they don't want to restrict from a congressional standpoint. and I and I do think that would be bad because other countries like China wouldn't do that and we would fall behind. It it is, it is, so Matt: Right, right. It's a game of chicken at this point. Well well what does this mean for clients, you know, listening to this? what does it mean for portfolios? Matthew Finley: Yeah, so we continue to to push into the stock or equity side of the markets over bonds. That's that's worked really well this year. we have some other positions in the portfolio we've added slowly throughout the year to help offset some of that bond risk that we're currently seeing. But we're not full bore, full pedal to the metal on the stock side either. I do feel that a combination of the election risk and this AI capital expenditure risk will come to head at some point. And we don't know when. So therefore there's plenty of headwinds that I wouldn't want to be 100% pushed in today. Although there are some categories that I believe firmly in, whether it's space or some things like that, where I think there's some phenomenal potential growth, but there's always headwinds there too. Matt: Yeah. Matthew Finley: So our portfolios are are set to push a little bit on the stock side, a little less from the bond side. and they're performing at you know pretty much as we'd expect on the year. Matt: Sure, yeah, because I think we trimmed trimmed a little risk in June. Matthew Finley: We did. Matt: you know, fortuitously as we're going through some of the sideways movement anyway. I know one of the more recent ads was adding a bit of gold, which we get consistent questions from clients about. maybe just in the few minutes we have left, why why now with that hedging position? And we hadn't had that before. Matthew Finley: Yeah, so we've looked at gold in the past, but it just made sense now as a what we'll call a real asset. So putting real assets in this almost an unnervy time with rates and yields and inflation, it it it makes sense. Crypto is another area that makes sense for a very, very similar thesis. If we're questioning yields in the bond market and our national debt as an example, which isn't just a US issue, it's most developed countries in the world have the same issue of too much debt. and yields continue to go up in bonds. Well, it sounds great, I can get a five percent paying treasury bond. That's actually not good for the economy and the market long term. unless it stabilizes at that, and then everything can reset to that. But that's where You want real assets to help protect the erosion of the dollar in your pocket. And again, that's where gold can come into play. And crypto and and what we have as a Bitcoin holding come into play for that to help potentially offset what could be some of those risks in dollar or yields moving forward. Matt: Okay. Yeah. No, that that's a good explanation. We we've always talked about items like gold in the past as not not truly an investment in the investment sense. It doesn't earn anything. In fact it costs money to hold it. But just for all the reasons you described, just as a a a safety mechanism, a hedge mechanism. Matthew Finley: Hedge would be the right word, yeah. So I mean crypto we see as as an outside potential gainer, but it also has that hedge component. Gold we don't see as an outside outsized gainer type of thing, but we see it as a hedge. And so on paper it might look like it goes through runs of outsized gains, but really it's it's just reflecting the value of the dollars in your pocket more than anything. So we want Matt: Right, right. Matthew Finley: to protect some of that. Matt: Yeah, that's good. Well, let's let's wrap it up there. I mean, I think that you hit the highlights of of your article and just what we're thinking. trying to get this out as soon as possible after y you wrote it, so not too much changed, but markets are always changing. you know, this isn't advice on anything to do specific to your situation right now. but just know that that's why we do this. full time because the markets are always changing and we're we're just trying to adapt to them as we go. if if you have more questions though as a client about what we're doing in the portfolio, certainly happy to address those in our upcoming review meetings or or call us anytime. Happy to go over that. And if you're not a client, happy to give you a second opinion. Just chat through your situation. you know, no no requirement to to do anything beyond that. But Again, thanks for joining us. Thanks, Matt, for your your brainy thoughts on this situation and how it's educating me as as always. So until next time, Matthew Finley: Sounds good.