Often quoted in major national media, Adam is a Chartered Financial Analyst (CFA®), a CERTIFIED FINANCIAL PLANNER™ (CFP®), and has been included on the Forbes NextGen Best-in-State Wealth Advisors 2019 list. He is a member of the CFA Society of Los Angeles and the CFA Institute. Adam helps establish asset allocation strategy as a member of the EP Wealth Investment Committee, which supports all EP Wealth Advisors and their clients. The Committee’s top-down approach to portfolio construction begins with an outlook on the economy’s likely direction, followed by the implications for different economic sectors and asset classes. This culminates in strategic selection of the individual stocks, bonds, mutual funds or other investments deemed most appropriate for each individual client’s portfolio.
Markets Year-To Date Return
Trump Talks Removing Powell
Waiting on Tariffs & Trade Deals
Big Earnings Season Week
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Video Transcription:
Welcome in to the informed investor — Long-Term Thinking, Weekly Insights.
I'm Rob Black. Joining me today: Adam Phillips, Managing Director of Investments at EP Wealth.
We do this once a week. We always start with the same idea: how's the market doing year to date? We're into the month of April, so we're three to four months of the year done — so we're kind of getting in there.
Let's take a look at how we did last week:
The Nasdaq was down 2.6 for the week but down 15.7% for the year.
The S&P 500 down 1.5% for the week, down 10.2% for the year.
The Dow Jones Industrial Average down 2.7% for the week, just down 8% for the year.
The S&P Midcap was a little bit of a push, slightly higher but down 12.7% for the year.
And the Russell 2000 was a push — flat — but it's down 15+% for the year.
Adam, what are we seeing in these year-to-date numbers and maybe some of the recent market activity?
Yeah, well look — last week was a really calm week, with the exception of one day on Wednesday when J. Powell spoke. We could talk a little bit about that, Rob.
But on the whole, we've seen the markets rebound a little bit from their lows on April 8th. Now we've been of the mindset that this is really just more of a short-term bounce, and not to get too excited.
You know, what really led to this initial rebound was the fact that President Trump called for these kind of a 90-day delay while he negotiated new trade policies and agreements with our foreign trading partners. I think all that really does is it delays and postpones this period of uncertainty.
So, we're all kind of operating in the dark to an extent — whether you're a consumer, an investor, a business owner, or the Fed, and J. Powell. So, we're all in this kind of wait and see period, and it's the days when there's not many trade headlines that are generally a good day for the markets, and that's what we've seen.
Doesn't mean that we're out of the woods. And so actually today we're seeing the market — we're recording this on Monday — and so we're seeing the market sell off a little bit.
And so, I wouldn't say that we're out of the woods just yet. I think we're going to be in this period of volatility for a while, just because we're all waiting and seeing where things are going next.
I think it's fair to throw down that bottoms are rarely made in one day. Technical markets and upset markets tend to last more than a week or two. So, this looks pretty normal.
Let's talk about one of the things you brought up: Fed independence. What is the Federal Reserve? Why do we care that they're independent?
Yes, so the Federal Reserve is our central bank in the U.S., and they are the ones that are in charge of setting interest rate policy. They control short-term interest rates.
They have a dual mandate which is to sustain full employment — target full employment in the U.S. — and also manage prices, price stability, meaning don't let inflation get too far out of hand. And so this is their dual mandate.
They are an independent organization, so the Fed chair, which is currently Jerome Powell, he is appointed by the President but after that he is off and running.
I think it's very easy to assign blame to them when things don't go wrong. Sometimes it's of their doing — and there's a policy error and misstep. Other times they're just in a really tough spot.
And so, over the last few days we have seen that President Trump has made comments calling into question J. Powell’s leadership. And even as on Friday we heard from Kevin Hasset, who sits as head of national council of economic advisers for President Trump, said that they were exploring ways to terminate and remove Jerome Powell from his position as Fed chair.
So naturally that's just caused all these questions around: Is Fed independence going away? Is that under threat? And we're seeing that that's leading to some anxiety among investors right now.
I'll just say that this is very similar to what we saw during Trump 1.0, when he was not happy with J Powell's performance — and someone that he did actually appoint.
J Powell's term is currently scheduled to run through May of next year, so he has about a year left. The question is: will he actually be able to remain as head of the Fed through that time or will his term come to a premature end?
I think there's a lot of debate over whether President Trump actually has the power to remove him. He can be removed for cause. The question is: has there been cause? Is there a reason to actually remove J Powell other than the fact that you just don't like what he's doing with interest rates, and you want him to cut interest rates further to provide some relief to the economy?
I don't know if that really qualifies, but just talking about it and threatening Fed independence, we're seeing is really — it's adding just to this instability, this uncertainty in the markets.
I'm looking at my screen right now: markets are selling off about 3%. That's in large part to just recent news about threats to the Fed's independence.
This isn't the first time for Trump. It's not the first time in history. We know that presidents, all things equal, they want lower interest rates. They want to provide some support to the economy.
It's just not too often that we see presidents actually voice those feelings.
We've seen it with President Nixon in the 70s with then Fed Chair Arthur Burns. We saw it just before that in the '60s with Lyndon Johnson, and then it was Fed Chair Bill Martin.
And there's actually a famous story now where President Johnson actually physically assaulted Fed Chair Martin when he summoned him to his ranch in Texas. So, these things happen. It's not great, though, and I'm hoping that Fed Chair can remain strong.
I think he has a pretty good handle on things and he's in a very tough spot and I would hate to see him succumb to pressure to cut interest rates. I don't think that he will, but just the mere idea of it is enough to cause anxiety among investors.
I mentioned stocks are down today. We are seeing the dollar decline. It's down about 5% in the month of April, down a little over 10% so far this year from its January highs.
And so really all this does is it's another potentially unforced error by the Trump administration if this happens and could further undermine confidence in the U.S., and it's really just another sign that we may not have our things in order. Our house really just isn’t in good shape right now.
So, we need to figure this out.
So, it was a long weekend — Easter holiday weekend. Before we went on break, I saw the Trump administration talk about some trade deals, having good conversations with Japan, having conversations with China, and I kind of went into the weekend thinking that seems like a good thing, and maybe Monday, Tuesday, Wednesday we'll see something — but so far nothing really.
What are your thoughts on the lack of trade deals or anything that looks firm? Because it seems to be such an important time to hear something along those lines.
We really need to hear a win. I think a lot of eyes last week were on the negotiations with Japan, one of our biggest trading partners, one of our biggest allies. If we could get those easy wins on the board, that's great. It shows that the Trump administration is willing to talk and negotiate here.
Unfortunately, even though the White House said that things went very, very well, we saw the head of trade negotiations for Japan say that he's not going to go and agree to a quick deal unless the terms are fair and reasonable. And so that might take some time, but I think that's what we're really looking at.
We're certainly more likely to hear about progress with our allies, and those with countries with which we have strong relationships, as opposed to China. But I think that's really the first step, and until we get that, unfortunately I think we're just going to be in this wait-and-see environment.
We did see over the last couple of days that China and the U.S. still appear to be a ways away. There was news just recently about how China actually turned away a Boeing — the delivery of a Boeing jet. There was a picture that was on CNN and other media outlets. I think those types of visuals are reminders that the two sides are still very far apart.
What you're referring to is that Boeing took — not Boeing, but China — took ownership of one of these planes, Boeing sold them, and then China said "No, we don't really need it now, we're giving it back to you, so pay us back." There are no takebacks in airlines, but I guess there are takebacks. I'm not making fun of it, but it is shocking to see.
Let's talk about earnings season. Last week we got through a lot of big financial institutions. This week we get into kind of week two of the S&P 500, a lot of big boy tech companies — the mega cap 7 — including Tesla on Tuesday and some other big names to follow.
What are your thoughts on what we might see in earnings season from what we've seen so far?
I think while we're waiting for some news on the tariff front, it really comes down to any comments from policymakers at the Federal Reserve and earnings. This is really going to be a big week. We're only about 12% of the way through the S&P 500 companies as far as those who have reported earnings. Most of those are financials. So far so good, but it's way too early to get excited.
Now, this week is a big one. We have over a quarter of S&P 500 companies reporting. You mentioned some of the big ones like Tesla. There's Alphabet on Thursday, and actually Boeing, which we were just talking about, is reporting this week as well.
I think this is going to be a really important time. We don't really care too much about what the earnings were over the most recent quarter — we care about where things are going. This is really an important time to hear from management about how they're operating in this environment.
Obviously, it's hard right now. I mentioned all this uncertainty — but what does it actually mean for their plans for investment, for capital expenditures, for hiring plans? Are they on hold? Are they providing guidance for earnings going forward over the next quarter or over the next full year? That is what we're all waiting to hear.
We came into this year, and we've seen this pullback in stocks, so some are talking about the fact that valuations are a little bit more compelling now. But those valuations — something we talked about on last week's webinar, Rob — they're only as good as your expectations for future earnings.
The expectation for future earnings: we're still looking at about 9% earnings growth year-over-year for the calendar year 2025. I think that is still very ambitious.
What we're on the lookout for this earnings season is: do these companies scale back, try to set expectations or reset expectations with investors for future earnings? Do they actually remove their guidance altogether, like some companies did? Delta actually did that a couple weeks ago and said, "You know what, there's just so much uncertainty here, we're not even going to try to guess what our profitability is going to look like." That is not an ideal setup, and I think that's what a lot of us are on the lookout for this time around.
Now we're also missing one area that some people are going to want to hear about — not just the Trump tariffs — but one area that people may want to hear about is AI and the Magnificent 7, and maybe even some Department of Justice updates and cases. There's always a lot as far as big news headlines and some of it scarier than others.
Any thoughts on AI, Adam, and maybe what to expect in the coming months and quarters?
Sure. Look, that was the theme the last couple of years. I think it's been maybe moved to page three or somewhere. It's buried there underneath everything else, but it's still very important.
So much of these biggest names in the S&P 500, the mega cap tech, they are dependent on this AI theme to an extent. This time around, sure, we have Alphabet, which I mentioned is reporting on Thursday. They've been investing quite heavily in AI, so I think it's going to be important to see if they're seeing any payoff from that and if they're continuing to spend in this environment.
You mentioned the DOJ — Alphabet is one company that also just saw a couple of rulings that were not in their favor over the last several months, one as recently as last week. So, it's going to be interesting to hear them talk about whether they have plans to break up or are facing pressure to break up, if they are being accused of having a monopoly.
But yeah, this earnings season it's going to be really interesting to see what is happening with that AI theme. Has this now moved to — let's call it the second phase — where it's no longer about investing in the artificial intelligence technology for semiconductors and the NVIDIAs of the world, but is the focus now on software and those that are actually going to be able to apply this to their businesses?
I don't think the AI theme is dead, but it's certainly not as top of mind as it was. It's still very, very important, and we'll see. I think it's going to be a lot more company-specific going forward.
Thank you very much. I threw that AI question at you — complete curveball — and you nailed it. I appreciate that.
I like the third page, right next to the comics or right next to the puzzles. You can find Adam, you can find your financial planning team at epwealth.com. That's epwealth.com. There's replays of events like this. There's also some webinars, some blogs, lots of content. Great time to always reach out to your financial planning team.
Tax season isn't over — is over for most of us — but not all of us. Always something to look forward to. Always something to think about in financial planning.
This is the Informed Investor Insights. I'm Rob Black with Adam Phillips, Managing Director of Investments at EP Wealth.
Good day.