Talking Markets with Trivariate's Adam Parker
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Viking, committed to exploring the world in comfort. Journey through the heart of Europe on an elegant Viking longship with thoughtful service, cultural enrichment, and all-inclusive fares. Discover more at viking.com. This is Barron's Live. Each week, we bring you live conversations from our newsrooms about what's moving the market right now. On this podcast, we take you inside those conversations, the stories, the ideas, and the stocks to watch so you can invest smarter.

Now, let's dial in. Hello, everyone, and welcome to Barron's Live, our weekly webcast and podcast. I'm Lauren Rublin, Senior Managing Editor of Barron's. Thanks for joining us today to learn more about the markets and stocks in the news. Stocks opened this morning in a bear market, and they're up a bit from there, but anyone who's been following the market knows it's been a brutal few days. If you are wondering when the selling will stop, well, so are we.

My guests today are two of the sharpest observers of the investment scene, Barron's own deputy editor, Ben Levison, and Adam Parker, founder and CEO of Trivariate Research. Adam holds a PhD in statistics and has spent many years on Wall Street's buy and sell sides. He's a big favorite in the newsroom, and I am thrilled to welcome both of you to today's Barron's Live.

Thanks, Lauren. Thanks, Lauren. Thank you both for joining the call. So, Adam, I'm going to start with you, as is our practice with our guests. And I'll start by noting you were bearish at the start of the year, somewhat bearish. You forecast a first half correction, although what I'm going to call the tariff trauma is obviously worse than you or anyone else expected.

But you wrote Sunday night that you think the worst of the tariff news is out there already. So my question is, why do you think that's so? And what do you think that means for the markets? Yeah, I was being a little cute there, Lauren. I missed it. A little intro, meaning sort of like the second derivative, that phrase of like,

Could it get worse? The irony of me saying that is I saw something come across my desk five minutes ago that Trump's talking about maybe a 50% tariff against China. And what I meant by that was it wouldn't be 35% or worse because he said 34 last week. But you did see kind of an impossible 90-day stay on all non-China countries. I think the challenge is we just don't know. The number one question I got last week was like, what's the administration thinking?

And I really don't know. And I think uncertainty means you usually pay a lower multiple for stocks. And I'm kind of keeping that view into earnings season at least, I guess, to quickly answer your question.

That's a reasonable view. So what are you watching to gauge how much more downside there might be? So short term, tactically, I really like to look at the financial conditions index, which is sort of a amalgamation of several metrics, one of which is like the VIX. So volatility, et cetera. If you go back to other extreme sell-offs we've had,

What we noted last night was it looks like if you got back to some of the extreme periods in history, there'd be about 6%, 7% more downside. That was from Friday night's close. Now, as we're talking here midday on Monday,

I think we're a couple percent down today. You know, we were down four or five and then up a little bit and then down again. So it's a little bit hard to know where we're going to close today, but I think we're most of the way there. And so I know a lot of long, I just did a one hour Zoom with a huge institutional investor, one of the biggest in the country with a couple hundred people on the Zoom. And they're trying to figure out when and how to get bullish with a two to three horizon, just viewing it that, you know, unless we have a sustained tariff,

issue, a sustained trade war, probably, and this is the way I think about it, probably my 2026 earnings just became my 2027 earnings. And so if I can really look out long-term, maybe there's some pretty good opportunities to buy stocks that are down a lot in the last month,

We're going to get to that later in the call. Go ahead, Ben. I was just wondering, when you're looking at, you know, you talk about looking for opportunities. I mean, knowing that recession odds, it seems like, have risen, do you stay away from the economically sensitive stuff and look for the more, you know, secular growers that have been beaten up a lot in this? Or are there types of stocks that you think people should be looking at? Yeah, for sure, Ben. I mean, I think there's three or four different answers to that. One is, you know,

What are the themes that we still believe grow above GDP for the next three to five years? And when you look at those, you might say a computation generally. So AI semiconductors and maybe the AI software that goes around it, power and utilities, electrification industrials, housing and building materials, healthcare services, life sciences, like there's broad themes that most growth portfolio managers have stocks in. The challenge has been that those themes have been really correlated to each other. So we saw

this year, like on that deep sleep Monday in January, where the poster child stock in each one of those growth teams all were down a lot. So I think you really have to be careful about it and go with the one you think maybe has the best risk reward. I know that for me, when I do decide to get bullish, that it will be tech I upgrade and it will be semis I want to own, semiconductors. The reason I say that is we looked at the last 20 times the stock market was down 10% or more.

And we took a three-month period after those sell-offs and said, which sectors on average work best? The answer is tech. Tech worked in 19 to 20 recovery quarters and on average was the best performing. And if you look at what within tech is going to drive the optimism again, it's probably going to be semiconductors where some of the big stocks are just down so much in the last

really like weak, forget two or three months. So I think that's one, the growth theme. Two is if interest rates continue to go lower, then the relative attractiveness of the high yielding sectors, the farmers, the utilities, and the telcos could also be a way to sort of hedge that correlated growth theme risk.

And so that's another way to think about it. And then lastly, I think it's much shorter term, which is like, where are the earnings estimates relatively more achievable right now? Is it healthcare? Is it metals? Or where the prices are up and et cetera. So I think there's a couple of different sort of

balancing some from each of those baskets, probably the safest way heading into April. Adam, we had some questions about the MAG7 stocks. And what do you think the outlook is for them after this? You mentioned liking tech stocks and semis. What about the MAG7? Yeah. So for three years in a row, we wrote ad nauseum that you should be at least market weight the MAG7. My logic was,

one, that they're not very idiosyncratic stocks. So if the market goes up and growth beats value, and I say, Ben, how do you think Microsoft did today? He's going to say up and he's gonna be right, like 95% of the time, right? So they're kind of macro. Two, they're really well covered. So it's really hard for me to romanticize. I know something about

Amazon that nobody else knows that's not in the price. And then I'm a contrarian bull. I mean, there's 65 buys and five holes and zero sells or whatever it is. So, and the third thing is even though they're kind of macro, it's hard to find a basket of other stocks that I can own that mirror their performance. So I had said, be at least market weight. Most people are underway because of 525 rules in their ETFs or whatever, or risk management. Just own these things and don't let them hurt them or help you. And I changed my mind in early February. We wrote a big

of downgrade note on the mag seven and my logic for the downgrade was um i just couldn't get over the capital spending guidance from the companies in january that the business models had

what I thought were seven to 9% capital spending to sales. And they guided to what looks like 15% capital spending to sales for this year. And that new CapEx is depreciated over a few years. They have to keep investing at that rate. And so that seemed to me like a change to the business model where in order to keep their technology lead and moat, the capital intensity went up. And if you're raising money for a fund right now, you have a new fund idea, you know,

These companies are going to have declining margins and you're going to have trouble raising the fund for a declining margin group. So I think the challenge with the Mag7 is I want to own them when I think their revenue is growing faster than the broader market X the Mag7 and when their margins are going up. And I think right now that's a little bit of a challenge. So-

I think it's going to be cautious. You layer on the whole China situation and with Apple, all the stuff that's going to happen to all their various supply chain, et cetera, et cetera. I think it could be bad for their margin profile in the next couple of quarters. So I'm staying a little bit cautious. If you're S&P 500 focused, though, remember they're 29% of the market cap. So I'm not saying own zero. I'm just saying own 22% or something instead of 29%.

That's a fair point. So Ben, if you're still on, I wanted to ask you, you have been extremely bearish and rightly so since you effectively canceled your bullish market call two weeks ago. What are you watching now to gauge whether stocks are going to bottom?

Gosh, I wish I knew. I mean, part of it is I expect there to be some tactical bounces here because the market is so beaten up. And we've seen this before. You get these big drops, you get bounces. But with the volatility where it is now with just these wild swings, it's hard to know how sustained those are going to be.

And so part of it is just looking again, are there stocks that are cheap and seem to have been hit harder than they should be? But I think more than anything, just to step back, I'm looking for clarity. Like, what is the end game? Right now, I feel like the policy is,

questions like, does the administration want to negotiate? What are they trying to accomplish here? Is it just to, do they really just want to eliminate every single trade deficit that we have? In which case, I think there are huge problems. And so trying to get some clarity on that is going to be a huge way. But also just keeping an eye on the economic indicators. We've never

We had a lot of the sentiment indicators were turning negative, but the hard data had held up. Now we're going to enter a period where the hard data could turn and then watching the earnings and not even really the earnings. We're going to talk about this more, but what the companies are saying. I just think there's a lot here. There's going to be a lot of movement when you have a VIX that's at 45, it's hit 60. You just get these big moves and it's hard to know what they mean.

The VIX is the volatility index for those who don't know. You mentioned the economy, and I wanted to ask Adam about that. Many economists and market strategists are forecasting much greater odds of recession since the tariff announcement. So, Adam, what is your economic forecast? And could you explain to us how this current market sell-off might translate into a recession? Yeah. So, look, I have to admit, Lauren, I'm not an economist.

That makes three of us. I have a PhD in statistics. I've always focused more on the stock market and the market action. When I've worked with economists, what I found to be true is the stock market predicts the economy, not vice versa. So I

I didn't always incorporate their forecasts into my view for equities because I knew statistically, and I could measure it, that the stock market predicted it. So I think when the market- That suggests we're in trouble though, doesn't it? It does. So I think exactly what I was going to say. I think the stock market going down does increase the chance of a recession. You see that with the really low consumer confidence as well.

So I do ingest dozens and dozens of variables and economic variables, but I think predicting them is hard. And I'm not even sure most economists can explain to me what already happened. Forget forecast what's going to happen. I feel like what we're good at at Trivariate is explaining to you what already happened.

Because the way we tag stocks and market, I think that's easier on the stock side than it is the economic side. I know that sounds crazy, but so to me, yeah, I think it makes sense to reduce your economic outlook. I think it makes sense.

to increase your probability of recession. But based on what's in the price, like, look, I mean, over 200 stocks out of the S&P 500 are down more than 15% since February 19th. So if I'm right that the best thing I could do right now is say one year of earnings growth is out, my 2600s are now my 27, isn't that already in the price on average for a lot of stocks? I think so. So what I need to really understand is how long is this trade war going to happen? How much damage is done to consumer confidence?

How much are management teams going to sit on their hands? What are they going to guide to in July when they report in the next couple of weeks? And is that in the price or not? So what I need is like a company that misses and the stock doesn't go down. If I saw that, then I could at least think temporarily risk-taking looks better. But in the last three or four weeks, any companies reported and missed at all, it's just gotten hammered.

I don't think we're going to know where we're going on tariffs, but we will know what corporate leaders are thinking about it. And you mentioned earnings. We're on the cusp of second quarter earnings season. It starts on Friday. In fact, the earnings will be old news. Excuse me. First quarter earnings season. The earnings will be old news, but the guidance will be so critical, as you mentioned. So tell me what sort of guidance you expect to hear. What do you think CEOs are going to say about the outlook?

Do you think they'll be extremely bearish, moderately bearish? I think they'll share some of the sentiment we're sharing right now, which is they're uncertain.

right? That, you know, obviously it depends on the company, their exposure to different, you know, their costs and revenue in China and other countries. But I think they're going to express caution and uncertainty. And I think maybe even that phrase kitchen sink, right? Like, why don't you throw in a little bit of a lower bar so that you have a better chance of clearing it if things do sort of improve later in the quarter. So,

It's a good quarter to do that. Yeah. Yeah. Why would you if you if you and I were in the room and you're the CEO and I'm a CFO, we're saying, hey, we got our call next week. What should we guide? No way are we going to set the bar high. No way are we going to try to disappoint investors with what we can produce in an uncertain environment. So I think the real risk is twofold. Right. Or what I'm looking for is twofold. One, like you said, I think perfectly, Lauren, like what are the management teams thinking about Q2 when they guide for July?

Where is their head based on what their customers are telling them right now? What's happening to their inventory? How much spending they think they need to do? Probably cutting back all non-essential spending because they're just uncertain, right? So that's one area. And then two, does the stock market take that down revision well or not?

Does the stock market say, okay, down 5% or 10%? That's actually not that bad. The stock's down 20%. Maybe I'm okay versus, whoa, is it a trap door that opened on the earnings for a couple of these companies? And then that's not in the price. And I think we just don't know really yet. But as you hint, there's a little bit of gamesmanship in it.

Because companies may guide for much lower than they're actually thinking. Yeah, I think the dream scenario is they guide really badly, stocks only down a little bit, and then it can kind of recover and they can beat again and create more of a V-shaped optimism later in the year. But I don't know how they could guide optimistically right now. And so maybe everyone knows that there's a negative skew in what the expectations are. And the question is, is that negative skew in the price? And therefore things are okay. I just need

I'm totally comfortable liking stocks at higher prices than I used to not like them at. That's how life is. You don't always buy everything perfectly at the bottom. And the reason I say this is because when they're higher after they report, you'll have a new data point. The new data point will be what the management's telling them about what their customers are saying.

So it'll be a very interesting quarter. Before we go on to some companies in the news, Ben, I wanted to ask you where you think the Fed will come out in all of this. The Fed meets again the beginning of May. President Trump has urged Jerome Powell, the president of the Fed, excuse me, to lower interest rates immediately. Powell has said the Fed is in no hurry to lower rates. How is this going to shake out?

- That's a good question, Lauren. You know, I've talked to, you know, if you talked to people a week ago, they would have said there's no way the Fed's going to do anything, that the risk to growth might be high, but the risk of inflation is high as well.

But you start to hear murmurs. I talked to someone when I was reporting my column for this weekend who said this, and there was someone at J.P. Morgan was on, I think it was on Bloomberg or CNBC talking about it, but that there actually could be a surprise rate cut between now and the May meeting if the market keeps dropping. I think, one, going back to the financial conditions index is that it drops too much. The market drops too much. And

the credit markets start acting messy, the Fed might decide that it has to do something to stabilize things. And so I think it's just going to be a question of what it can do. I know the market now is starting to price in four or five cuts for the year when it was maybe doing one a couple of weeks ago.

so that there is a sense that the Fed is going to have to act at some point, whether it wants to or not. And it'll be almost a game of chicken between Powell and the markets in some ways. So an observation and a question. A surprise emergency cut does not seem in the Powell sort of playbook. He's a very deliberative Fed chair. And will it matter if the Fed cuts if the tariff outlook doesn't change?

I was interviewing for my first trading job on the day when the Fed did a surprise rate cut around long-term capital management. Oh, fun interview. Yeah, it was wild. And you saw what markets did then. They rallied. It was the same thing in, I think it was in 2001. I believe it was at the beginning of 2001, there was a surprise cut as well that cut

led there to be a very good January. But the problem is that I think it depends a lot on just how the economy is holding up. And after with long-term managed capital management, you know, the economy held up, that really got, you know, that was that those cuts were the fuel to really kick the dot-com bubble into overdrive in 2001. You know, you ended up with two more years of a bear market.

And, you know, I think we in some ways it looks a little more like 2001, perhaps just because the valuations are still high and whatnot. But so, you know, I think you'd see a bounce, but I just don't know how long it would actually last.

TrueStage is the marketing name for TrueStage Financial Group, Inc. It's subsidiaries and affiliates. Corporate headquarters is located in Madison, Wisconsin.

All right, let's move on to some companies reporting this week. I mentioned that earnings season starts on Friday and it starts with big banks. JP Morgan reports Friday morning. Ben, what is on tap and what do you expect to hear from management on the earnings call?

Well, it's interesting. We got Jamie Dimon's letter to investors today. Many of his letters have mentioned economic hurricanes and whatnot. Now that we're actually in one, he did not talk about that.

which i right you know it's kind of ironic because yeah we got through everything else and then not the weatherman anymore no but you know he's he's worried um you know he said that the latest tariffs are going to increase inflation they're going to slow down growth um and he's also just he's worried about the long-term impact on america's economic alliances and what will happen there so he's worried um and part of the problem is you get all these numbers that are out for the quarter

Ben, have we got you? I'm still here. Can you hear me? Yep, I can hear you. Adam? Oh, there you go. Okay. And so you have the bank and it's supposed to come out with earnings of about $4.63. That's going to be up from $4.44. Bank of America thinks that the earnings will be better than that.

And the question, though, is does any of that matter? Because now we're seeing the yield curve is starting to work against banks and their net interest income. And the M&A kind of stuff we saw when Jeffries reported hasn't really materialized. And so the trading will probably be better.

good, but some of the investment banking growth might not. It's going to be just a very tough market for them. They're going to have to guide into this. The question now is how much of the potential pain that's coming is in the earnings already. With JP Morgan, it's not a cheap stock. There are cheaper banks, let's put it that way. It trades at about two times tangible book value.

That's nowhere near even a 52 week low on the value on evaluation basis. And so I think it comes, you know, what kind of guidance are they going to give? And is that guidance reflected in, in the bank? The one thing that has going for it, it is like the, it is a fortress. It is the strongest of the banks and it trades at that premium valuation for a reason.

And it'll be interesting to see how the market reacts to whatever they have to say come Friday. It's a good one to go first this time around, for sure. So Morgan Stanley is also reporting on Friday. Their business is a bit different. They have a huge wealth management business. What do you expect to hear from them? No, it's going to be the same thing. But, you know, there are two things working against them. One is, again, the investment banking. You have to assume that there's going

going to be some weakness there, but they also make money off of management fees. And so, when the market drops, they're making less money on those wealth management fees that they have. And the stock is probably, again, it's not cheap either, it's a two times tangible book. And so, if both these things, the investment banking side and the wealth management side are getting squeezed, it might not be the greatest time for it.

So, yeah, I mean, it's again, it's one where I think you have to watch what they say, but there's not a lot of risk. I think there's there could be more downside there. What about Wells Fargo that also company also reports on Friday? Any thoughts there?

Yeah, it's cheaper. It's 1.4 times tangible book. And there's the potential for the government to lift these asset caps under. And that's the big thing that probably helps it hold up better than others.

It does have its issues. It's, you know, the company has a lot of credit card loans and things like that. And so you have to think that there's going to be some pressure on consumers. But I think with that asset cap and the lower valuation, that gives it the potential to hold up a little bit better.

All right. Let's move on from the banking sector and talk about cars. We're going to hear from CarMax this week on Thursday. The used car seller reports, as I mentioned Thursday, it is a beneficiary or should be a beneficiary of tariffs, which will make new cars more expensive. So what's the reality? Will things work out that way? What's on tap for earnings? Yeah.

Yeah, I mean, I think that there is at least a better chance of it working out that way. You know, the stock is down a little bit in the last three months, about 5.4 percent. Earnings are already supposed to kind of double from a year ago, go to 65 cents from 32. And it is thought to be a beneficiary of tariffs, that if car prices are going up across the board,

you know used cars are going to be a better option for people and they're going to be able to charge more for them so you might get more business and higher prices higher margins um on those used cars so it's uh it's potentially better set up but i think that's why you've seen it hold up better than others it's

down, but it's sort of in this kind of trading range that it's actually been in for a while. And that's, again, people want to know, do they see this actually being a good environment for them? They're going to be listening to that guidance. I think the one thing that could be a problem is that if there is a recession,

people aren't going to be buying cars, whether they're used or new. And you also, they have a financial division where, you know, they help with loans for buying the car and stuff. And that can be hurt if there are people who can't pay off their loans. But it does look to be certainly among car stocks. It looks to be in a better spot. And it's an interesting to keep an eye on. For sure. And we will. So, Adam, I meant to ask you, what is your view of the financials these days?

You know, I liked listening to Ben's comments. I'm glad he had the harder questions. Look, I mean, the way I think about it, the way a lot of institutional investors think about it is the three best banks, JP Morgan, Goldman, and Morgan Stanley, they're down a lot.

I think what Jamie has going for him is that he's always bearish. The stock went from 130 to 280 while he was negative on the economy the whole time. So if he says cautious stuff on the call, I don't know if it makes things worse for the stock. And it's been reset 25% from highs already. So I think the risk word for the banks is improving. And I would say that...

The euphoria post the election where all the activity based stocks, KKR, Goldman, we said everything went up a lot. Nobody believes that's going to recover anytime soon now. So I don't think people are playing for a near term recovery or any positive news there. And the stocks have reset and I think they deserve a premium valuation like they have.

The other point I'd make is that I don't remember a time in my career where people were pitching insurance companies over banks as much as they are right now. That's interesting. And so I think the, you know, the, the, um,

counter the contrarian side of me would say maybe it makes sense to sort of sell a little insurance and buy a little of these quality guys you know at some point here in the second quarter all right we had a bunch of questions about what to do with your portfolio so i'm going to put some of them to you charles wanted to know what are your thoughts on trying to buy the dip and what sectors would you target we talked a little bit about sectors but i wonder if you could amplify

So I'll make a holistic educational comment. Love it. You know, I spent...

I spent a lot of time trying to forecast the S&P on a one month horizon in my career. I used to be the strategist at Morgan Stanley and I asked the folks internally in every asset class in every region, the strategists in economics, currency, commodities, rates, Europe, Asia. And I said, "What do you guys think picks the US equity market? What do you think?" And I took everything they ever told me

And I tested whether I could use that predict a one month return in the S&P by just trying to find markets where the market was down two and a half percent or more. Those were historically about one out of six months, the market was down two and a half percent or more in a one month period. And I thought, well, if I can flag to everyone, this is likely to be a bad month, that'd be super useful. So I took all these signals.

technicals like relative strength and sentiment like bull bear ratios and implied versus realized vol and other leading indicators like transportation index or the Korean market, all these things. And the answer is it destroys value when you try to do it, that most of those are volatility signals, not directional signals. And so you might be right this time, but other times the market goes up more than normal. And so you really don't want to try to make one month market calls very often. And that'd be like my holistic high level statement.

That being said, I will try to apply it, the tenor of the question, what the person really meant, Charles, was like, what do you do right now? And my sense is that, and I kind of said this a little bit earlier, just that the guidance skew is going to be so bad and stocks aren't acting well, that I think you'll get a better entry point is my guess. We have a little bit better grip on

you know, what the companies are saying and what their customers are telling them and how much they overproduce consumption during the quarter. And so I just think the skew is uncertainty should be bad for risk taking. And I think we're all kind of saying the same thing, which is things are pretty uncertain right now.

If I had to go in and buy something and I had a two or three review, I like semis. And if it's, you know, what market could change its mind about in the next two or three reviews, I think the market could end up thinking that healthcare is the place to be because healthcare and tech converging will probably drive a lot of companies to go from their horrendous inefficiency to being more efficient. And I see so much opportunity in the healthcare sector for that. So I'll take semis in healthcare.

All right. Sounds good to me. Howard asked the question, it's sort of the inverse of that. Are there any recommendations for things to sell right now? Yeah. Our biggest underway for this year, which we started in January 1st, is consumer discretionary. And we started by picking on the...

Well, we've had a negative view of a lot of US retailers for a long time. For three years, we've been telling people to sell Target and the companies that were at first affected by shrink, which is some made up word for stealing. But then just also ones that don't grow very fast, don't have online presence, et cetera. And you've seen the demise of Kohl's and Target and those kind of boxes for a long time. I think now the right thing, we put this in our Sunday note, is to switch to the companies that people think are going to grow really fast and they're still kind of expensive.

And so the risk is they don't grow that fast. And all of a sudden you're looking at Mercado Libre or Chipotle or Hyatt or Carvana or Wingstop. And maybe that growth projection isn't double digits coming forward. Maybe it's less. And why am I paying 39 times forward for Chipotle?

If it grows flat this quarter, you're going to pay 25 times. So I think the next phase is shorting these consumer discretionary stocks with high expectations and high multiples. And Adam, can I just also, what if I'm someone who, like I didn't see this coming, I have maybe an overweight in stocks still. It's now down almost a bear market, not quite.

Can I, I mean, do I just sit at it? Do I just wait and hold and hold my positions here and hope that it bounces back? Can I do anything? Yeah, look, I tend to think that, you know, for, you know, remember when I was at Morgan Stanley, I forget the exact name.

but the average advisors in their mid sixties or average client is in their late sixties or income focus are not making huge, you know, whipping around decisions. They have an allocation equities to keep it all that kind of stuff. I don't think you want to, you know, take out money at the bottom and miss out in both directions. I do think there's,

you know, kind of six, 7% downside here potentially. But if I'm looking out two or three years, yeah, I, of course I think there's upside. And, and so I wouldn't panic and sell stuff. You know, maybe you switch some of your allocation within, within the market to a little bit lower volatility for a while. There's some ETFs you can do that or quality, you know, stocks, that kind of stuff. I think healthcare is a great place to be that most people, you know, that I know have not

They don't like it. So there's some things you can do intramarket, but I don't think you panic, take all your money out when the market's had its biggest kind of correction in some time. That's never been a good idea historically. That's Barron's kind of advice. Thank you. I wanted to ask a question for...

for Ben, this is from Harry. He wanted to ask about the debt markets. And Ben, could you talk a little bit about what's going on in the bond market, what's going on with yields? - Sure. Today's been a little bit of a weird day because treasury yields are actually up.

And, you know, it's unclear exactly when they're up in a very large way. So like the 10 year has gained 0.14 percentage point, which is a pretty sizable move. And it's especially strange on a day where the stock market itself is growing.

still not having a good day. I mean, I think there are a few reasons and Adam, please correct me if I'm wrong on any of this is that one, there had been, you know, there is an attempt to bottom here in the stock market, you know, is down 4% at one point, the SP is down one now. And so with that happening, perhaps people are taking some profits on

on their longer bonds. There also might be some shifting out of the long bonds into shorter maturities. And the big worry, and I don't think it's this one today, but I think the big worry is that you do have foreign investors who are not only exiting US stocks, but are exiting treasuries as well. I think otherwise, we actually took a pretty close look at what's happening

in the credit markets as well. And you're getting, you know, you have some weakness in junk bonds, but at this point it looks to be pricing in, you know, higher, the spreads in the junk bond market. So the amount of extra yield you were getting over treasuries when all this started were very tight. You weren't getting a lot of extra.

And now you're getting a lot more extra. And that seems to be more a reflection of the economic uncertainty and the possibility of a recession. But so far, there aren't the signs of financials. There aren't signs of stress to the financial system in any of the credit markets yet. And that is good news. So, yeah, I guess I can leave it there. Yeah, I agree with that. But I mean, I think the only observation I'd add is just

The non-US equity markets really got beaten up today. And, you know, I could just say from the post I sit in, you know, people were pushing non-US equities over US equities quite a lot here in the last couple of months. And I think, you know, global trade war is,

probably isn't good for the earnings of a lot of companies, whether they're US or not. And I think that maybe had a lagged impact on some global investors today a little bit more, maybe a little later than we think it should have in the US. But you saw Nikkei down seven or eight and Germany down four and Shanghai down six or seven. You've seen stock, the global markets also got beaten up today.

What do you think about the international markets? Amit asked the question, are they better or safer than the U.S. in the current climate? Today, obviously, they're not. But looking out, what do you think? So it's funny you asked that. I always tell this story. When I was at Morgan Stanley, I think it was like 2011, somebody asked me about European stocks when I was on TV. And I said, I think Europe is great for vacation, but not for stocks.

And I generally still have that view. Maybe it's not as good for vacation as it used to be. But the problem with liking the stocks there sustainably is what you're saying is you think the growth trajectory is going to be higher over the next three to five years. And I don't believe that.

If I go through those themes I articulated earlier, AI semiconductors and associated infrastructure, AI software, the stack around it, all electrification industrials, housing building materials, life sciences, health services, power utility, the US companies are going to pro rata benefit more.

And there are some good companies in Europe, but it's not like Schneider, the electrification industrial company, trades at five times earnings and Eaton trades at 35 times. They're both like similar valuations. So the good companies trade at premiums and the rest of the companies are worse. So I don't, do I want worse companies? No, I don't. Well, that's a succinct answer in case anybody was wondering. But I'm a biased, you know, I'm a bias, I guess. And mostly for the last 15 years, that your vacation, not stocks thing has kind of been right.

What about Asia? Yeah, I think Japan is probably the most interesting place, you know, because there definitely are some companies that are doing things in AI, doing things in robotics, doing things in polyfunctional role. Like, I think that area is of interest. The currency movement in the last year has gotten some U.S.

people a little bit spooked. If you remember, all of us have been doing this for 30 years, had never used US equity focus, had never used the phrase Japanese carry trade in a complete sense to describe US equities in our entire career. And then we all used it 87 times last July and August. So I think that got some of us a little bit spooked about exactly what happened there and how it hurt the equity market so sharply. But it V-shaped recovery so much that it seems to almost have left everyone's mind already.

And so, you know, I'm a little bit worried about my view is, yeah, in a global equity portfolio, if 60, 70% of the liquid stocks are U.S., yeah, I want to own 70% U.S. And yeah, I'm sure there's some India and some Japan and some other things that are interesting, but I don't know why I'd be structurally underweight U.S. when the companies here just benefit more from the main themes over time.

And if people think that our economy is dysregulated or has some disruption potential, I don't think there's a lot of other places around the world that have a better constitution of companies with more stable outlooks. So the best house in the neighborhood. Yeah.

So we had a question from Kevin that speaks to your kind of work. He wants to know what kind of quant strategies prove most effective for these kinds of market events. Yeah, I mean, it's a tough question because the way quant money is run is so different than it was when I formed my investment heuristics. So I don't know what Kevin does for a living, but I'll just say it this way. Most quant money now is run market sector factor neutral. It's run with hundreds of longs and hundreds of shorts.

It's run with an average of a two day to five day holding period, some three hour to 10 day, let's say. And it's run six to 1200 gross exposures. So leverage six to 12 times.

The algorithms almost always do not run when a company reports earnings. They purposely are out of the market when companies report earnings in the day or two before and after because that report itself destroys the alpha from the quant algorithm. So if that's not what you were thinking when you asked the question, you were thinking, do I buy stocks that are cheap in price to forward earnings? Do I short those that are expensive? That is not really the way most quant money is run anymore. Yeah.

if you're talking about like, what do I think is going to matter quantitatively? I think there's two or three things that I really focus on factor wise. One is I avoid, I'd like to avoid companies that have

large accruals. What that is, is big disnex between earnings and cash flow. So their capital spending went up a ton, their inventory versus their sales went up a ton, their intangibles go up, things that usually create stress on the P&L. Those are areas I want to avoid. Those are factors that I don't want to be neutral. I want to be avoiding those. I think really tactically this year, companies that have accelerating revenue are going to work.

Um, because if you can still make it through this environment with this uncertainty and kind of grow top line faster this year than last year, you have to have something that's really juicy, uh, a new product cycle or, um, you know, a share gain or something that I think the investors will reward. So we could go, we could talk, if Kevin has a followup, you know, whatever he can, you know, hit me at trivectorresearch.com, sales at trivectorresearch.com and we can, we can answer it.

Great. Thank you. Another question has to do with precious metals. PCS, what is the way forward for gold and silver? Obviously, gold has had a fantastic time of it up until, say, the last week or so.

You know, I don't have, I mean, again, I'm colored by my history. I bought physical gold in 2008 when I found out that UBS money market accounts were backed by auction rate securities. I sort of freaked out and bought some physical gold. I've held it since then. Silver, I think, is a trickier argument just because

I made the mistake of buying physical silver too, PC, don't do that. These ingots are like the size of a woman's shoe box and they weigh like 84 pounds. So it's like, that's a mistake. So don't do that. But look, I think the tenor of your question is as long as people have concerns about fiat currency, they have concerns about inflation or stagflation or policies causing it, gold looks good to them.

I think in a portfolio where somebody has a bunch of money and they say, I want to own 2% to 5% and some combination of Bitcoin and gold, I think that makes sense in the world we're in. But one thing I don't believe in is that the stocks that have exposure necessarily on gold in particular, I've seen so many research reports where the gold price is up and the stocks aren't and I should own the stocks and the stocks somehow don't work. So that I don't necessarily have a strong view on is the gold stocks.

Do you have any thoughts on copper? You know, the last time I did a lot of work on that, I convinced myself that demand growth would exceed supply growth for a five to 10 year view. And I still kind of have that view fundamentally, but whenever you get a recession fear, you see it with aluminum and copper, the stocks just get creamed. And so you have to balance that. Like, are we not when, when we're not in a recession, I think you'll ultimately get way higher. And I could see somebody wanting to own, you know, free port or the associated copper stocks for three to five year view and just don't,

don't like change your exposure but they're gonna they're gonna act badly when people have a recession when there's a growth scare all right we will see what happens we are at the end of time and i want to end with a quick quiz and we'll grade john at the end of the year so adam ben do you think the market will be up from here at the end of the year ben really um no i don't okay adam um i think it will be a higher than here yeah on the s&p yes

Okay. We'll have you both back at the end of the year and we'll see how things work. Ben, lunch for the winner there, okay? Sounds good. All right. Thanks. All right. I love ending with a deal like that. Thank you both for a fascinating call today. Yeah. No, thanks. Thanks a lot for having us. I enjoyed it. And if anyone wants to contact me, they can just go to tribectorresearch.com and check us out. Thanks a ton.

Thank you very much. Next week on Barron's Live, the subject will be the U.S. economy. And Megan Leonard, our senior economics reporter, will take the moderator's mic. She'll be interviewing Bethann Bovino, chief economist at U.S. Bank, about economic conditions, the outlook for the Federal Reserve's rate policy, and recession risks. Who knows what the outlook will be by next week? It's an interesting time. But please tune in for Megan and Bethann. Thanks, everybody, for tuning in today.

Stay well and have a good week.