Decoding Today's Markets: Signals, Shifts, and Smart Positioning w/ Benjamin Armellini

Lindsey Helman: 00:00:00

Welcome to Financial Perspectives, a CFA Society San Francisco podcast where we interview and discuss trends with leaders from across the investment and finance industry.

This month, our host, Tanya Suba Tang, Membership director with CFA Society San Francisco, had the pleasure of speaking with Benjamin Armelini, Managing Partner at Main Street Research. Listen in as they discuss market volatility and key strategies for long term investment success.

Tanya Suba-Tang: 00:00:39

Hi Benjamin. Welcome to Financial Perspective podcast.

Thanks for joining me today.

Benjamin Armellini: 00:00:43

Hi Tanya, my absolute pleasure. Thank you for hosting.

Tanya Suba-Tang: 00:00:46

So I am very thrilled about the conversation that we're going to have today because it's going to really talk about what's happening in the economy, in the market. And I'm sure our listeners who come from various different backgrounds are probably like me, very confused on what's being said in the news.

But then what we're seeing kind of how the market is performing. So I am so excited to have you on our show today and kind of maybe set something straight and help us kind of understand what's happening.

Benjamin Armellini: 00:01:15

Absolutely. Well, looking forward to the conversation.

I'm sure a lot of the questions we'll cover, ones that myself and my great team here at Main Street Research chat with clients about a daily basis.

Tanya Suba-Tang: 00:01:26

So top of mind and I'm sure a lot of our listeners can agree.

But I'd love for you to kind of help set the tone by providing us with a brief overview of the current administration's trade policy and I'd love to hear your thoughts on what you think its impact is on today's market.

Benjamin Armellini: 00:01:41

Erratic is probably a good single word, but it's, it's been a fascinating environment and maybe evergreen is another good word to describe it as a lot of the policies enacted and really that continue to change in real time by the Trump administration have been digested and repriced that way by financial markets. Exactly in that manner. Of course, we saw the really big tariff tantrum in April and the overarching piece of guidance that we've given investors.

And something as investor ourselves that we really focus on is where maybe the highest quality of earnings growth is going to be not just here in the United States, but also globally, given that we operate in a globalized economy and these tariff policies. Right. Impact things at the global stage.

Tanya Suba-Tang: 00:02:36

So let's shift a little. I'd love for you to discuss the health of the labor market and employment concerns.

So as I'm sure again, our listeners are probably aware, despite, despite some strong headline job numbers before the shutdown, we've seen significant layoffs in certain sectors. Right. Do you view the current labor market as resilient or do you think it's a fragile and on the brink of a major downturn?

Benjamin Armellini: 00:02:59

It's a good question.

We've been in a little bit of what we'd refer to as maybe a data desert with the government shutdown in terms of actually getting the most recent labor statistics. But our overarching thesis is that the labor market by and large is resilient.

Also, as investors, we think it's very important to take a big step back and understanding any single piece of data, particularly economic data, that by and large is lagging rather than leading. Right. If we focus on how markets, which arguably are the best mechanism of pricing, where expectations are going to go.

If we focus, yes, of course, on hard economic data, labor data is important, but.

But if we're really listening to a lot of these earnings calls and here in the US having a good understanding of maybe what types of businesses are really struggling, struggling as opposed to which are thriving, that's probably a more important consideration as an investor.

So this year has been a fascinating one where many people, at least if you're looking at just the US economy may describe it as K shaped and you can visually think about the upward sloping part of that K being anything AI, artificial intelligence adjacent.

And that type of investment permeates far beyond these large language models, also known as LLMs, into several sectors beyond just technology and communications, which oh by the way of course are the two leading sectors so far year to date and have represented such a disproportionate amount of. And again we'll focus on US markets S&P 500.

So market capitalization, meaning the largest companies in the world like Google and Nvidia Meta, Amazon, et cetera, technology and communications have really represented a very disproportionate amount of returns.

And so we can see this very much highlighted where if you look at rather than a market capitalization weighted index, you look at an equal weighted index, massive spread in terms of performance, 10% if not more depending on the day here.

And the final thought, maybe I'll add on here, which, which is tied back to your first question, is beyond just the US Economy, there is a bull market going on right now in global investments.

And particularly when you look at economies like Japan, India, but also Europe, when we look at things like the MSCI World Stock Index ex US so not including US investments, that's up almost two times as much as the S&P 500.

And that's something a lot of domestic only investors maybe aren't paying ATT something that we've really encouraged our, our client base and it's the way as a discretionary manager that we invest to look outside the US So our thesis is there's a bull market certainly here in the US but but also outside of.

Tanya Suba-Tang: 00:05:56

The US So what's your economic forecast? Recession, slow growth or stagflation?

Benjamin Armellini: 00:06:02

Another wonderful question that we really tried not to be in the business of forecasting too far out because we might argue that gets more into speculation. Make an argument that we're in this Goldilocks economic environment right now where we would continue to see economic growth.

The biggest question mark when you really dig into that data is around how balanced, maybe in a single word. And again we're just going to focus on the US right now that US economic growth is.

If you were to strip out the contribution of artificial intelligence growth looks not particularly strong. I'm not going to go so far as to say it looks week, but it's, it's nothing to get very excited about.

One of the really interesting byproducts of artificial intelligence and I think we've seen this whether it's long term charts of certain subsectors like biotech which have just had a terrible past five years now hitting at least on a technical perspective, meaningful new highs where a lot of these potential productivity enhancements, these aren't specific to just technology companies and you see that whether it's in the biotech healthcare space, this has also been pretty prevalent and newsworthy and the industrial space and very large industrial names, Caterpillar, deer, et cetera that have shown up in headlines and I think investors have rewarded as well. So for us we view this as a secular bull market.

The again biggest question mark moving forward is given the tremendous amount of capital expenditure spending going on, capex spending occurring and a lot of the largest businesses in the world going from capital light businesses to now actually going out and investing in very expensive assets and going all the way down to the real estate, signing these massive contracts for energy. And so now they're going into more capital intensive business models how that all plays out over time.

And that seems to be the big thing that investors and financial markets are grappling with. But we find it to be a very, very exciting time as investors and certainly an environment that we would advocate.

You have to use risk management tools perhaps like stop loss orders, options overlays, et cetera to help manage the great unknown.

Tanya Suba-Tang: 00:08:29

Well, kind of perfect segue to my last question for you.

So what is the most critical piece of advice would you, in your opinion, give to a long time investor or even importantly like everyday Americans just trying to navigate financial decisions and what clearly is a chaotic environment?

Benjamin Armellini: 00:08:47

It is. And probably the best advice we may have is to not go at this alone. And so there's a lot of great resources.

Whether you want to be a do it yourselfer like Charles Schwab has really empowered many individual investors to do or depending on the level of wealth, the complexity of wealth that you're dealing with, if that has become burdensome or just something that maybe has grown beyond your capabilities, there's obviously great firms.

VR is certainly as one of those that can help solve the issue of how do we steward these assets not just for our lifetime, but for multiple generations. So with that said, again, for long term investors, maybe answer this kind of a funny way, which is what is the worst thing that you could do?

And I think our opinion on that is just trying to time markets and be in and out.

We've just found a lot of of investors, actually all investors who have great long term success, they do things like financial planning and they really define what success looks like for them rather than maybe defining that relative to some arbitrary benchmark like a specific index. And then it's much easier to help solve for.

How do we get someone from here to there if we have a really clear idea of what we're trying to actually solve for? Because oftentimes people may just say, oh, I want to beat know the S&P 500 of the NASDAQ.

And that's great until it isn't and it goes down 50% now you have to double your money just to get back to.

Even so, just knowing that there's a lot of resources out there, podcasts like this wonderful one that, that you're putting on in addition to just a plethora of financial literature and ideally a community of advisors who are really excited about serving future generations.

Tanya Suba-Tang: 00:10:32

Well, thank you so much, Benjamin.

I was very delighted to kind of have this conversation with you because it did give me a little bit of clarity on kind of what direction we're going to and what you know, to said you don't, you're not in the game of forecasting but to kind of expect and kind of how to navigate through this. So thank you so much for joining me today.

Benjamin Armellini: 00:10:48

Absolutely. We're excited for what the next couple of months and quarters bring for this market.

So appreciate your time and look forward to the possibility of doing this again together.

Lindsey Helman: 00:10:59

Thank you to this month's guest Benjamin Armelini for joining us today and shedding light on current market trends. Join us next time for another Financial Perspectives episode airing on the last Tuesday of the month.

Make sure to send in a message to the show by emailing podcast@cfa-sf.org. We'd love to hear what you thought of this episode or any suggestions on future topics you'd like for us to cover. Thank you for being a dedicated listener.

This podcast is produced by CFA Society San Francisco, a not for profit professional association providing professional learning and career resources to over 13,000 investment industry professionals worldwide. To learn more about CFA Society San Francisco, visit our website at cfa-sf.org or connect with us on LinkedIn.