Investment Update: Talking Markets with Bessemer's Holly MacDonald
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Hello, everyone, and welcome to Barron's Live, our weekly webcast and podcast. I'm Lauren Rublin, Senior Managing Editor at Barron's. Thanks for joining us today to learn more about what's moving the markets. A lot of stocks are moving the markets down. Stocks sold off sharply on Friday, and the downdraft has continued today.

My guests today are Barron's Deputy Editor, Ben Levison, and Holly McDonald, Chief Investment Officer of Bessemer Trust. She's also the firm's incoming CEO. Holly is also a member of the Federal Reserve Bank of New York's Investor Advisory Committee on Financial Markets. I am delighted to welcome both Ben and Holly to today's Barron's Live, and thank you both for joining me on the call. Thanks, Lauren. Glad to be here. Hi, Lauren. Wonderful to be with you.

Wonderful. So let's get started. Holly, I want to start with your market view. Bessemer has been pretty constructive on the market this year. That means bullish for those who don't know. You're also bullish on the U.S. generally. You told me you have about 80% of your equity exposure in U.S. stocks. I am curious whether the latest sell-off on Wall Street is troubling to you and what you make of it.

Yeah, so, Lauren, we're watching markets every day, so certainly monitoring that. But I'd say it's not troubling to our longer-term outlook, which, as you mentioned, is indeed constructive. I think there's just three quick points I would hit in terms of our more constructive view. We're coming into 2025 with a pretty strong backdrop. I think worth acknowledging that growth is still likely above trend in the 2%, 2.5% range.

Meanwhile, we have inflation slowly moving back down towards the Fed's target. We are dismissing the idea that inflation is spiking from current levels. And so, meanwhile, when we enter this period of more policy uncertainty, I think that backdrop is quite important. We also think the policy uncertainty will be manageable. And then, finally, the Fed can really pivot and be supportive of the market and of the economy if needed, if things do slow more than expected. JUDY WOODRUFF: What kind of gains do you envision for this year?

I think we could see about average gains. We looked back after- What's average these days? Yeah, it's a great question. More like low teens, I'd say is average in the last decade, not like the 20% plus that we've seen in the last couple of years. We do get the question a lot, after such strong years, how can you expect another positive year? We've looked back since 1950, Lauren, and there's really been nine instances where you've seen the market

rally more than 20% two years in a row. And then in 75% of those instances, it's still positive the next year.

Interesting. I want to ask you about something that we've been tracking at Barron's. Investors seem to be increasingly worried about the health of the consumer. Inflation has not been licked, as we know, even though you reject the idea that it's going higher or that it's reaccelerating in a meaningful way. Many investors think the Trump tariffs could contribute to greater inflation. And consumer sentiment took a nosedive last week, as measured by the University of Michigan survey.

Since consumer spending accounts for about 70% of the economy, any disruption in spending, any pullback by consumers would obviously spell trouble. So what is your read on the consumer's health when you look at all the data?

Laura, I think overall the consumer remains healthy. Some of the most important factors are how is the labor market doing? Are people employed? How is the housing market doing? Are their homes still appreciating in value or at a high level? And then how are the equity markets doing? Do people have gains there and so they're feeling good about their overall wealth?

I do think in the last couple of weeks, we've seen some of the policy uncertainty creep in to this feeling of, oh, gosh, I'm not exactly sure where the economy is headed. And so that really is worth watching going forward. But at least the strong foundation, I think, is still there for the consumer.

So you mentioned inflation, and we will get a reading on the Fed's favorite inflation indicator, the Personal Consumption Expenditures Price Index, on Friday. Next week, we're going to get the February jobs report, and the Fed, of course, will scrutinize both before its next meeting in mid-March. So you're a student of the Fed to some degree. What is your rate outlook this year? How do you think the Fed will react? What kind of data do you think we'll get, first of all, and then how do you think

I think the Fed can ease more than is currently priced. Last I checked, there was just over one ease priced into the market. I think that they'll be able to do a bit more than that to bring the policy rate closer to neutral. As we saw last year, there's some interesting elements with the inflation data in the first quarter with some of the seasonal adjustments, which have been somewhat exacerbated in the past couple of years. And I would also note that some of the increased

items in the core CPI do not feed into the core PCE. So I don't expect as much of an upside surprise there. And so with that, I think, again, looking once we get beyond the first quarter into the second quarter and later this year, there will be more Fed easing that comes in reality and that becomes priced into the market. Is that because the economy is...

what would you say is the economic outlook in that case? Yeah, in that case, I think even with steady growth, you can see more easing, again, because rates, in our view, are somewhat restrictive still. And to the extent we see some softening, maybe more than we expect, or just some bumps along the horizon, I think that's where the easing can come in. Just to qualify this, I'm not anticipating a massive easing. That would only really come on the back of a recession, which is not our call.

Okay. I mentioned in my intro that you are a member of the Federal Reserve Bank of New York Investor Advisory Committee on Financial Markets. Tell me what the committee does, and I wonder if you can summarize the committee's views on inflation and policy.

Yeah, absolutely. So Lauren, the IACFM, it's a forum for more informal discussions with the New York Fed president and better than I think passed along to broader senior management there. We discuss financial, economic, public policy issues, and just really provide a broad backdrop for what's going on in the markets from a pretty diverse group of investors. As of the end

October minutes are published. And I would say we just had our February meeting, which was largely consistent with some of the discussion in October. There are still a number of participants who are looking for a pickup in inflation. And that's really where I was...

able to get a sense that our view, I think, is a bit out of consensus at this stage, that inflation is actually still on a pretty slow trajectory lower. You mentioned tariffs and inflation. We don't think that tariffs are inflationary. I think that the Fed believes this as well, per a lot of their prior papers written on the topic. I wouldn't expect them to come forward, though, with an academic statement about this right now. I think

The whole concept of inflation is a bit lost on the everyday consumer. They're focused on just the level of prices. And those, Lawrence, your point, those are meaningfully higher still from where we were pre-pandemic. And so it's not really the moment, I think, for the Fed to put their foot down and explain why tariffs are not inflationary. Any price increase at this stage is a bit of a risk to the consumer, given the experience of the last couple of years.

It seems like stepping on the third rail to talk about it publicly. 100%. 100%. So we're going to come back to some of your favorite investment ideas, Holly. But I want to now go to Ben and talk about some companies reporting earnings this week. So Ben, it's an NVIDIA week. And when the most magnificent of the MAG7 reports, although I'm not sure it's so magnificent anymore, everybody does pay attention. The stock has not been a winner this year, however.

We'll hear more from NVIDIA on Wednesday. Investors are expecting another strong quarter. The company is, of course, the leader in AI chips. What's your perspective? What are we going to hear?

It's an interesting one for Nvidia. I mean, they really haven't done much since June as a stock. It's pretty much gone sideways for quite a long time. Three things are going to be people are going to be watching for in this, according to Jay Woods over at Freedom Capital Markets. Besides the Blackwell chips, people want to see those new. These are the high end chips. They're supposed to really drive the sales.

And so folks are really paying attention to how many of those chips are being sold. They want to hear more about the deep seek stuff, whether the China AI is really that much cheaper. What is Nvidia seeing in terms of its sales because of that? And finally, they want to see some guidance. Will they be able to-- is the demand there from the users of their chips? And can they secondly meet that demand?

And are they going to actually raise their earnings guidance the way that they always have? And I think you look at the stock and there's a lot of concern about all these issues. Otherwise, it wouldn't be trading as sideways as it has. Mizuho really likes the long setup, though, for these earnings. They're a little worried that the stock has actually come up a bit since hitting lows in February.

But they also note that a lot of people have actually pulled back. A lot of the buy side has actually pulled back from Nvidia. And they think that the the guidance is actually or that the numbers are actually mutable and that the guidance could very well be higher. And if that's the case, the stock should do very well.

I'm really on the fence with this one. You know, I don't think it's quite the market driver that it was a few months ago. I think the market is trying to work out a lot of things simultaneously, but it's definitely going to be important for the market.

Yeah, I was going to ask you, usually when NVIDIA reports, it has a tremendous impact on the market. So you think that will be somewhat more muted this time? I do. I mean, I think the big question now, you know, you look at a day like today where there was a report from an analyst that said that Microsoft may have...

cut some leases on data centers. And that caused a lot of these data center stocks and AI trades to sell off. And I think that there's just a lot more questions around it. I'm not sure that NVIDIA can answer those questions on its own the way that people might have looked to it, say, six months ago. Does this mean the market has broadened a bit?

Yeah, there's, it definitely has brought in, there's a lot of other themes that are out there trying to, to sort of gain control. You know, we see it in some of the cyclical trades where, you know, are they going to benefit from, from productivity that's created by the, by AI? Are there other things happening there in terms of just the deregulation that could happen under President Trump? There's so much happening that we're seeing days where it does feel like you're seeing a broadening out. I mean, today, even on a day, that's not a great one for the overall market.

You're seeing many stocks actually do well. The last time I checked, which is about half an hour ago, they actually had about 350 S&P 500 stocks up on the day.

That's a healthy sign. That is a healthy sign underneath the surface. And so it just becomes a question of how much of this, is one theme going to be able to pick up the, really take the reins and drive the market higher? Right now, we're kind of, we keep hitting these little highs, but they're not really meaningful highs. And we're kind of stuck in a range bound market. Seems that way.

Ben, you there? I am here. Can you hear me? Great. Yes. I want to move on and talk about the kings of home improvement retailing. We're talking about Home Depot, which reports on Tuesday, Lowe's reports on Wednesday. Honestly, if it is not garden season in the Northeast, I am not shopping at either store. But what about everybody else? How did the quarter shape up for both of these companies?

Well, there's two issues. I mean, there's a lot of issues for these companies. The stocks have not done very well, and right now they are falling pretty hard. The stocks, they have the housing market is not

It is very weird, right? You know, you're not getting a ton of new sales happening, which is where you get a lot of the work that needs to be done on homes happens right after a sale is made. And it doesn't seem that you have as many people wanting to do upgrades to their homes either.

And so that has created some issues here. But some people are optimistic about it, partially because the stocks have dropped so much recently. Home Depot is down 8.3%, and Lowe's is down 9.6%. So they're almost down about the same amount, which tells you that the market's more concerned, I think, about the macro than any differentiation between Home Depot's business and Lowe's business.

But Wedbush is pretty optimistic. They've seen some positive read-throughs from other companies that have already reported, including Wayfair and Florin Decor. And they also think that despite the sluggish home improvement retail sales growth, I think that was about 0.2% year over year is their number, they actually think that Lowe's and Home Depot are both outperforming that and taking market share.

You know, for Home Depot, it's going to be about, you know, continuing the strength that they have among the pro category. They should be able to beat their numbers, but it'll be interesting to see what happens. They're expected to report a profit of $3.63 versus $3.82.

For Lowe's, it's an interesting one. Wedbush's analysts over there have a neutral rating on it, but they sound actually a lot more positive about Lowe's. Number one, because they sell a lot of appliances and appliance sales seem to have been very good. And that they have all these initiatives going on where they're trying to drive that pro business. They have a better balance between DIY and pro. And Wedbush actually thinks that could be a good thing, especially because Lowe's is a lot cheaper than Home Depot.

It'll be interesting to watch how both these stocks respond to earnings, partially because they've been trading almost exactly the same way. I agree. So we'll learn more Tuesday and Wednesday. Norwegian Cruise Line reports on Thursday, and this stock has cruised to a 10% loss in the past three months, although it's up almost 50% over 12 months.

One of the issues is tax-related, based on something Commerce Secretary Howard Lutnick said. Tell us more about the situation and tell us what's expected from the earnings release. Yeah, it's funny because the stocks have done so well, and then last week was terrible.

I think a lot of that 10% drop for Norwegian came on Friday when this news came out that they were talking about changing Section 833 of the IRS code and that would make it so that these companies, which don't have to pay a lot of taxes, would pay more taxes.

The analysts that I've been reading think that this is really overdone. I think this was Raymond James was pointing out that the valuation of the stocks imply that a 20% tax on, or right now implying a 20% tax on 60% of their pre-tax income.

And they think that's just too much. And these stocks have been actually doing quite well. You look at Norwegian, it's expected to swing from an 18 cent loss last year for this quarter to an 11 cent profit. Sales are growing nicely. These stocks have really benefited just from people wanting an easy way to take a vacation.

Teresa Rivas had picked Carnival last year, and it's done quite well for us as one of our stock picks. And she just points out that this is easy. You get on a boat and it does, you know, takes you where you want to go. It's cheaper than, it should be cheaper than having to fly someplace, do a hotel, do everything yourself. And it's just been a very popular way for people to travel since the pandemic ended. And I would suspect, especially with this decline heading into earnings, that the numbers could be very well received.

Okay, so perhaps the stock will end up cruising higher. After all, we'll keep an eye on the tax situation. I want to talk a little bit about AMC Entertainment, a former meme stock. The stock has had a tough time over three months and 12 months. The company reports tomorrow. What can we expect from AMC?

Well, people are really hoping that it is starting to get its positioning itself for a much better 2025. You know, the stock has a lot of debt.

And that's kind of overwhelmed the much better than expected 2024. But we are seeing earnings get better. It's expected to lose 18 cents this quarter and be against 54 cents. The previous year on sales of almost 1.3 billion, and that would be up from 1.1 billion. So things are getting better. They're getting their costs in control. They're getting their debt under control, which is important as well. They've been able to extend some of it and

They're also looking for other ways to drive revenue and they have this like popcorn business that they're hoping can help out there too. But it all comes down to the movies of 2025.

Benchmark is expecting a $9.5 billion box office. That would be up 11% from 2024. There's a lot of movies coming out. Mission Impossible 8, Jurassic World 4, lots of sequels. Avatar 3, we're going to get a new Superman. Fantastic Four, we're going to get the second part. Well, you're up on Hollywood, Ben. I'm impressed. I like these movies, right? I mean, there's some. Does anyone remember How to Train Your Dragon? That was my kid's favorite movie a number of years ago. They're releasing a live-action version of it.

I'm not sure I want to see that. I actually like the cartoon a lot, but there's a lot of movies coming out that have the potential to be very big hits and that could help AMC. So it really has to focus on itself as a theater operator, not as a new stock. Or a popcorn vendor, although that helps certainly. All right. I want to get back to Holly for a moment. I promised we'd get back and talk about some of your favorite stocks. Holly, you and your team favor quality growth stocks. Tell us what that means to you and what some examples are.

Yeah, sure, Lauren. When we take a longer-term perspective on the marketplace, we're looking for companies that are tackling large-scale problems where they're able to really scale whatever competitive advantage they have to create a moat around their business and in doing so have a high return on cash flow back to investors or back investors.

into their business to essentially continue that competitive advantage. And we're looking for reasonable valuations. We're not starting with valuation. So I certainly wouldn't put us in the classic value category of investors, but certainly valuation is part of the story. Maybe if I could just pick up on...

couple of things that Ben noted that I thought were interesting. I would agree we're seeing a greater breadth in what we're seeing both in terms of earnings, but also in terms of contribution to overall market gains this year. I was interested to see that to date, seven of the 10 top contributors to the S&P are not MAG7, so a shift from what we saw last year. What's the top contributor?

The top contributor I think still is is Max 7 so that, but not to negate the point that yeah it's still broader. When we look across. Okay, what about earnings, you and I talked a bit about the earnings outlook when we spoke last week. What are you seeing these days in terms of overall quarterly earnings and your, your expectations for the full year.

Yeah, I think things have still come in pretty steady. I mean, there are good expectations for the year of about 14 percent for the S&P overall. I think if we have a pretty onerous tariff regime enacted here, we could see a couple of points taken off of that. So more like, let's say, 11 to 12 percent. You know, that said, we're not anticipating the most onerous of the tariff proposals on

really will be enacted, but still a pretty good trajectory overall. Maybe just back to housing, which I think is quite interesting. And it really points to the unique nature of this cycle, both for the economy and markets that we've been in since the pandemic. Lauren, I think it's just worth remembering this when you look at historical comparisons to how other economic cycles have

evolved, housing has just been really on a very unique trajectory. If you look just at the level of existing home sales right now, you would probably say we're in a recession when you look at other periods. But it's very much a supply-constrained environment. And that's really why we're not seeing greater activity levels there. Given we have a lack of supply, we have an excess of demand, we have

high prices and we have pretty high mortgage rates, you're just not seeing the same turnover and activity there that you would normally see with an economy that's growing along at a pretty nice clip. Okay, business leaders, are you here to play or are you playing to win? If you're in it to win, meet your next MVP. NetSuite by Oracle. NetSuite is your full business management system in one convenient suite. With NetSuite, you're running your accounting, your finance, your HR, your e-commerce, and more all from your online dashboard.

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So it's tricky. I think it's one of the most complicated policy issues that the federal government and even the Fed face. The Fed can't do that much about it. And I think that's worth noting. We are seeing higher owner's equivalent rent than might otherwise be the case, because when you have existing tenants staying in their in their apartments or homes, they're actually re-upping it at slightly higher rates. I think in part because they're unable to find a home or apartment for purchase.

When we see new tenants engaging in contracts, those are falling. We're seeing prices falling there, but that's a smaller proportion of the overall market. So it is complicating the owner's equivalent rent and the more broadly speaking shelter market.

analysis and how that feeds into core PCE. So the Fed may have to acknowledge this to some degree, but we don't think higher rates is going to solve this housing supply issue that we have in the U.S. And I'm curious, it really falls at the intersection of interest rates. Where is really the 10-year, not just where is the Fed funds rate? How deficit projections factor into where the 10-year is?

And, of course, you know how the labor supply and immigration story factors into this as well. So it's one of the more challenging areas of, I'd say, the policy and economic landscape these days. Absolutely. Can you tell us a little bit about some specific companies that fit the quality growth theme?

Absolutely. Maybe I'll just start with AI. I appreciated the discussion on NVIDIA. I'd say at this stage, obviously, the AI story is much broader than just chips. I'll give you just a few examples of some companies that we like that are benefiting from the AI trends.

So Amazon's one that we've added to, clearly not a new story, but they're really effectively harnessing AI to improve operational efficiency. I was surprised to learn that their headcount had actually peaked in 2021. And instead, they've been deploying more and more robots, actually more than a million robots now working at Amazon, kind of hard to get your headcount.

your head around that. We're also seeing increased profitability there as they're scaling better globally. So that's one, again, that we've been adding to. Broadcom is an interesting one as well. I think as companies have more demand for specialization

creating their own chips and making them more specific for their business models, Broadcom can take on greater share and better valuation than some of the other AI stories. And then finally, one on the small cap side, more of an unexpected AI play, a company we hold is Axon. They're helping police become more efficient using AI, taking body cam footage

creating automatically generated reports that the police officers can then review. And their goal is to take the time that police officers are spending writing these reports, which is currently at about 25% of their overall time. Notching that down, I think just another example of how AI can be used to create inefficiency, sorry, to create efficiency, kill inefficiency, but it really is at the intersection of people still being quite involved in the process. What's the ticker of Axon?

Axon, let me just pull it up here. I don't have the ticker handy, but I do have my machines handy. Ben, you handy there with Axon's ticker? Yeah, it's Axon, A-X-O-N. Just Axon, exactly. Okay. I know that Ben is always looking at his screens. How about some names outside of the AI plays?

Sure. One theme I would note, maybe I'll give you a couple themes and a few quick hits on the stocks. Capital markets revival, we're seeing things finally picking up in terms of a few new issues and other activity. We like some of the large scale players here. KKR and Blackstone, for example, KKR had about a billion in fees from cost

capital markets unit in 2024. Blackstone's IPO pipeline is double what it was a year ago. So we think more activity, these large-scale players will be able to do well. Everything regarding power and the industrial power resurgence, I think we're finding a lot of interesting opportunities there. A couple examples, Quanta and Siemens Energy.

And then finally, just getting back to the consumer that we were discussing before, we think there's some opportunities for wallet share gainers to do well here. Costco is one that we still hold. We've actually pared that back a bit in favor of BJ's, which is trading at about half the valuation on forward earnings. But we still like both of those names. That's interesting. What about Walmart?

We hold Walmart as well. Clearly, more mixed news in the last couple of weeks out of Walmart, but we're seeing them deploy AI very effectively as well and still think over the medium term, they do stand to gain additional wallet share as well. Do you see the dip that it had over the past week around earnings? Is that a dip that's worth buying? Is it just something to hold through?

I would say largely hold through, but if you look on more like a three-year basis, we think this is one that would continue to pick up steam. So depending on an investor's timeframe, the dip that we've seen really could be an opportunity as well. So I want to go to some listener questions, and I'm going to start with a question from David, who talks about something Ben mentioned earlier, Microsoft having just announced that it is canceling some leases for data centers. Okay.

And the question is, I'll ask you, Holly, is this a red flag overall for AI? I don't think it's a red flag. I think the market is in the stage of over-interpreting every single data point that we get. I'll just even go back to DeepSeek. The fear that that was bringing up was, wow, AI is going to be so cheap that I should not invest in it. If you go back just even a few months,

The fear was, wow, we're at the end of the productivity that AI will unleash. So I think we're in unchartered territory to a certain extent because nobody can look five years out and say what the world will look like exactly and how AI will change it. And so the market is really over-interpreting every data point that we're getting here. And I think really from a medium-term perspective,

the broader AI story is still a buy. And Lauren, just to clarify, Microsoft actually didn't announce anything, at least not that I'm aware of. It was an analyst note from an analyst over at TD Cowan who put out a note saying that Microsoft has done this. And there's been a lot of talk. Other analysts have come out and said, you know what? We talked to Microsoft. They said that's not the case. People are still trying to figure out exactly what

Microsoft is doing. But the market did seem to take sort of a reaction. We'll sell first and we'll ask questions later. All right. I'm glad you clarified that. Thank you.

So, we've had a couple of questions, Holly about international markets, the emerging markets European markets and so forth. I wonder if you can explain why you are so heavily concentrated in the US, and whether you see any opportunities in some international markets, some of which have done quite well lately.

Yeah, absolutely. So it's really two reasons, Lauren, why we're so focused on the U.S. One is just structural. The number of these higher quality growth oriented companies that are here and just their disparity in terms of their ability to capitalize upon those advantages and have excess earnings versus international companies is the main reason. It's just a greater advantage.

a greater ground for picking these stocks. The second is more cyclical and more short-term, higher growth in the U.S., overall better inflation backdrop, overall more room for the Fed to cut. I think that that's more of a shorter-term factor. That said, I will say that prices internationally are quite attractive. And even if you just factor in things sort of bottoming out, there are some individual companies where

we're finding some opportunity. In one of our internally managed large cap portfolios, we have incrementally been adding to some of the China tech names. And they're just, again, valuation so low that as long as you're assuming that things just bounce around the bottom here, we think that there's an opportunity to tactically have some small additions. All right. Speaking of things you own, TJ mentions that Vesmer Group holds Visa. True? Not true?

True. Okay. And he wants to know, what do you see as relative strengths of Visa compared with MasterCard?

Yeah, so I'd say on both really, again, tackling a large scale problem of inefficiencies in spend, broadly speaking, Visa has a nice moat around its business. And when you have a pretty strong consumer and decent market share and their ability to pick up additional market share going forward, the valuation seems reasonable.

Okay, Ben, we have a question I'm going to throw to you. Jorge asks, is Berkshire Hathaway a good investment at today's price? We had a lot of Berkshire Hathaway news this weekend with the annual letter. Yeah, it's a good question. I wish Andrew Barry were here.

We'll bring them on one of these days. You know, I always think, you know, the market clearly likes what Berkshire is doing. The, you know, the reaction to the weekend's earnings call and also this implication that the, you know, Warren Buffett's stay at the top of the company may be ending soon has been very solid. The stock's up 3.8% right now. And I think that is probably a new all-time high.

And so the company is clearly doing something right, or at least the market thinks the company is doing something right. It's all very interesting considering that the one thing that it hasn't been doing right, or at least on a very short-term basis is its stock selection. It sold banks too early. It's been selling its Apple holdings for a long time when there were probably other, if it had waited, Berkshire could have made a lot more money.

And the company is also not buying back stock, which tells you that Buffett probably thinks that it's overvalued at these levels. And so I think a couple of things in my mind, is this a screaming buy? No, I do have to...

think that if you're the kind of person that wants a stock that is a good hedge against either the market continuing to go up, if the economy keeps strengthening and whatnot, Berkshire should do well because it has all these businesses that are really cyclical businesses. But at the same time, the large cash holding that Berkshire is sitting on now should also provide a cushion if things start to turn. So I think it's a good stock that kind of allows you to play it both ways, but I don't think it's a screaming buy. That's a very good analysis. Thank you.

So another question for you, Ben. Michelle asks, is it better to follow or better to invest in an ETF representing the S&P than to try to pick potential winning stocks with returns above the S&P? That is the $64,000 question. Yeah, I think a lot of it comes down to how much time you have to spend on your stocks.

For most of us, it takes a lot of time. When I was a trader, and remember, I was doing a short-term trading, every minute of the day was spent watching stocks. You don't have to do quite that level to do a little longer-term investing, but you really have to be digging into companies and reading reports and reading their 10Ks and doing all those things to make sure your portfolio is right. And that's hard work. The

Professionals have a hard time doing it, and it's even harder for people who aren't the pros. So I think for most people, using index funds, whether it's the S&P 500 or something that's broader or something that gets you – I actually like the ACWI, which sort of gives you international as well as U.S.,

But it's a pretty simple way to go. But on the other hand, there's lots of ways to be able to create a portfolio where you can use an S&P 500 fund and then add stock picks to that. You just have to be careful that you're not taking, say, an S&P 500 fund and then buying more NVIDIA because you'll end up with a lot of NVIDIA in that portfolio.

And so, you know, I think it comes down to there's really no right answer. You know, both can work out over the long run, but you just got to, you know, if you're going to be doing stock picking, take your time, really understand the stocks that you're buying.

And even then, there's no guarantee that you'll beat the index. That's correct. You get years like last year where if you weren't in sort of those magnificent seven or the big tech stocks, you had kind of a tough year. So this year will likely be better for stock pickers.

Yeah, one quick note on that. I was just looking at the average company volatility actually being quite high. It's at its about 75th percentile over the last 10 years, even though the index volatility is about at the 25th percentile. So,

Overall volatility low, high individual company volatility high. I think for, Ben, to your point, for the professionals who are day in and day out making these assessments, it should in theory be a better environment for that stock picking when you have that level of volatility at the stock level. That's a good point. I want to go back to Chinese stocks. We had a question from Selena who wants to know if you have any geopolitical concerns regarding Chinese stocks.

I would say always, yes. Clearly, China is at the front and center of a lot of the geopolitical topics of the day. So it's really about how low is the valuation and does the valuation account for the geopolitical risk? I'd say overall, I just want to emphasize we're still very, very light in international stocks. In China in particular, it's

about 3% of our equity portfolio. So just the very tactical assessment to dip our toe in a little bit from given that the valuations are just so low. And I think it's worth when we just look at the broader geopolitical environment, it's always easy to think about all the downside risks.

I think it's possible that given the attention on China in so many different areas, whether it's trade, technology, security, et cetera, it is possible that there would be some negotiations that have

broader level. And who knows if those actually can materialize and work their way out. I would note that China's economy is so weak now, much weaker than it was in the first administration under Trump. So it's possible that even if you were to see some type of ceasing of the negative headlines, that you could see some of the stocks bounce a bit.

But overall, China's a renter's market, not a long-term buyer's market interview. Well said. All right. We had a question from Dean. What do you see as the three biggest risks to U.S. equity markets right now? And if you don't want to limit yourself to three, give us whatever you want to say. What do you think, Holly? All right. So let's see. Topics we've talked about, but I'll view it more from the risk mindset. Yeah.

I'd say, even though our view on inflation is benign, inflation still should be a concern. And I'd say, Lauren, I'd more take it from the perspective that you were bringing up earlier in our discussion. It's not that inflation is going to really bounce meaningfully off of the current levels, but just the fact that it's been high for so long, just that that really starts to dent the consumer.

I have to say the geopolitical side as well. There's just so many balls in the air right now. You know, it's hard to see where they will all land, and that just always can be really a downside risk. And then maybe the third is just would be fatigue with policy uncertainty. As I had mentioned... We're just getting started, don't you think? Yeah.

And that's exactly my point, Lauren. It's been a couple of months here of the new administration. As I mentioned, some of the policy is favorable for markets, some of it more uncertain, but you could see a level of just fatigue with trying to understand how this all will play out for individual companies. Okay. That leads me to another question from Georgina about gold. Do you have any views on investing in gold?

We typically do not hold gold. It is not an income-producing asset. It certainly can be a store of value, but really, because of our more constructive view on equities, we would rather lean into these higher-quality companies where I think you can both get some degree of income coming off of them, but also have the potential.

likelihood of price appreciation over a medium term. So we would be de-emphasizing gold, but we're really not short-term traders. So I don't have a strong view on kind of the short-term outlook there. And I'm guessing gold miners don't meet the quality threshold. There you go. They do not, Ben.

Okay. All right. Last question. What about the dollar status in the near and medium term, given the Trump administration's tariff policies and uncertainty about foreign policy? That's a question from Ray. And I'll let you answer it, Holly, and then we'll ask Ben.

So the U.S. is very fortunate to still have the reserve currency status of the dollar that allows for a lot of things to even go slightly wrong in terms of our near-term policy outlook and still to have a very stable backdrop.

And so from that perspective, I'm not seeing many challengers to the dollar. So even though there are a number of problems or uncertainties that we're facing here, you know, really, I would have if you don't ask me this question 10 years ago, I would have thought by now, maybe the euro would be used more frequently, maybe the renminbi would be more reliable, etc.

Maybe some of the digital currencies would be taking some share from the dollar. And really, without going into the details, we're seeing none of those competitors to the dollar really emerge. And so from a medium-term backdrop, I still feel pretty good about it. I think it's positive that there seems to be a greater awareness of the deficit spending that had been occurring

really unfettered under both parties for many years. There is some common sense discussion around the deficit now, which I think is healthy and makes me feel better about the medium term prospects for the dollar to retain its status. All right. And how about you, Ben? What's your view on the dollar?

For now, I think I agree. I do think gold is benefiting a bit from the fact that there isn't any place else to put your money except the dollar. And so you're seeing some central banks buy gold as they look to diversify. And until there really is that competitor or something happens to really break the system, I think the dollar is the only place really to be.

And we'll have to see how this plays out, though, as we have these tariff negotiations going on. It's very odd to try to figure out how policy is going to impact the dollar. Trump obviously said he wants a weak dollar, but a lot of the policies create a strong one. It's going to be strange to watch. Okay. A lot to watch out there. So we're going to get back to the business of watching and call it a day. Thank you both for joining me today. Really appreciate it.

Thank you, Lauren. Thank you, Ben. And thank you to our listeners for tuning in. Thanks for your great questions. We'll be back next Monday. Ben and I will be talking about markets and stay tuned for information about guest speakers. Let us know in the Q&A box, excuse me, in the chat box, by the way.

If there's anyone you'd like to hear from on Barron's Live, you can also email us at events at barrons.com. We'd love to get your ideas for guest speakers. There are a lot of great people out there and we have a lot of calls ahead, which we're very excited about. Please tune in next week. We'll be talking about markets again. Thanks again, everybody. Have a good week.

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