Listen to a special election edition of Carpion Private Wealth’s Market Update. Special guest Mary Ann Bartels and Carpion’s Founder, Eric Cardenas, discuss the implications of the upcoming election and its impact on economic status for the future.
Opening Remarks
Eric:
I’m thrilled to introduce our special guest speaker this afternoon and this evening, Maryanne Bartels, Sanctuary Wealth’s Chief Investment Strategist, who is responsible for providing market perspective and investment guidance to the firm’s more than 80 partner firms across the platform and the Sanctuary Asset Management Investment Council.
In this role, Maryanne provides Sanctuary’s partner firms with investment strategy and market analysis through regular commentary, presentations, media appearances, and speaking engagements, incorporating her more than four decades of experience at various financial institutions.
As a member of Sanctuary’s Investment Council, she also identifies themes and determines market and asset allocations, working closely with the firm’s capital markets, alternative investments, Sanctuary Asset Management, and investment solution teams.
Just so everyone knows, we — along with many advisors out there — use Maryanne’s research as a gauge and pulse of the U.S. economy and markets.
Maryanne has also appeared on CNBC, Bloomberg, and Fox Business and is often quoted in publications including The Wall Street Journal, Financial Times, and Barron’s.
We’re certainly looking forward to hearing her thoughts on today’s markets and how things may or may not have been impacted by the 2024 election.
I’ll have a few questions and closing remarks afterward, but with that, thank you, Maryanne, for joining us. I’ll turn it over to you.
Market Overview
Maryanne Bartels:
Well, thank you very much, and again, thank you everyone for joining.
When we came into this year, we called it the “Year of the Bucking Bull” for both equity and fixed income. We expected both to have very positive returns this year, but that it wasn’t going to be easy and that we would have periods of volatility.
Boy, has that happened this year.
The first half of the year was really tough for the fixed income markets, but we think rates have finally peaked for this year and probably going into next year. We also think inflation has peaked, so we think rates will continue to come down.
Now, they’ve come down sharply because of the yen carry trade. If you don’t know what the yen carry trade is, that’s the recent volatility we just had in the markets.
For at least three decades, if not four, it has been very common for global investors to borrow money in yen because interest rates were effectively zero and then go long other assets — whether currencies, fixed income, equities, or even real estate.
As the Japanese central bank has tried to normalize interest rates and raise them faster than expected, it spooked the markets. We had this unwind where investors had to buy their yen back and sell assets.
That created significant volatility. In fact, we haven’t seen this type of volatility since COVID and before that, 2008 and 2009.
But as you can see, we’re bouncing right back because fundamentally nothing has changed. It was literally a trade unwind.
The economy is still growing — growing slower — employment is still good but slowing, and that’s allowing interest rates to peak. We think rates will continue to come down over time into next year.
We think the fixed income markets still offer opportunities for investors.
What does that mean if you’re in cash? I know that a 5% to 5.5% yield is very attractive, but when the Fed starts lowering rates, that rate over time is going to come down. So you want to be sensitive to the fact that falling rates will impact even your cash holdings over the coming quarters.
The Fed is expected to begin lowering rates in September, likely starting with 25 basis points, and may cut one more time this year, with several more cuts expected next year.
There’s probably at least 100 basis points, or 1%, in expected rate cuts currently being priced into the markets.
Equities have also experienced a lot of volatility.
There are a few reasons for that:
- The yen carry trade unwind
- Stocks reaching upper-band valuations, especially technology names
- General concerns around earnings and the economy
That said, second-quarter earnings have actually come in fairly well. In many cases they’ve met or exceeded expectations, and outlooks haven’t deteriorated.
Today we had Walmart report earnings, and this was important because the consumer represents about 70% of the U.S. economy. Walmart beat expectations and had a lot of positive things to say about the consumer. They even raised guidance.
Consumers may be changing how they spend money, but they are not stopping spending, and that’s a key ingredient for economic growth.
Last quarter, GDP grew around 2.9%. Right now, this quarter’s growth rate is tracking around 2.4%.
There’s been a lot of talk about recession, but it doesn’t look like we’re going to have one this year. Next year could be a different story if things continue to slow, but this year still looks pretty good.
That said, we’re not out of the woods for volatility.
We think stocks will continue to experience more volatility and that we could get another bout around September and October. Historically, September is the most volatile month of the year.
However, November and December are seasonally very strong months. We still think markets could finish the year up around 20%.
Technology and tech-related companies continue to lead. We used to call them the FANG stocks; now we call them the Magnificent Seven.
AI is the new driver within the markets, led by semiconductor companies like Nvidia.
We’ve been saying semiconductor chips are the leadership within tech, and we still believe that. The group recently had a sharp correction — down around 35% — but many of those companies had previously been up more than 200%.
A 35% correction after a 200% run isn’t actually unusual.
I think it’s important to understand both short-term and long-term cycles.
The U.S. equity market entered a secular bull market in 2013. The NASDAQ — where many tech names are concentrated — entered a secular bull market in 2017.
Secular trends can last 15 to 20 years.
We think we remain in a secular bull market through the end of this decade, perhaps into 2029 or 2030.
After that, we could enter what’s called a secular bear market — not necessarily constant declines, but more of a long trading range.
A normal bear market is typically 20% to 30%. A secular bear market can involve declines of 50%. These cycles are normal.
But it’s important to remember that markets have a long-term bias to the upside.
Technology, in our view, continues to lead into 2029 and 2030.
We also think it’s possible we’re in the early stages of a bubble — not yet a full bubble, but similar to the environment from 1995 to 2000.
The tech bubble didn’t just happen in 1999 and 2000. It started in 1995.
You had major corrections in 1997 and 1998:
- The Asian financial crisis
- Russia’s default
- Long-Term Capital Management collapsing
Markets fell sharply but came right back because the secular trend remained intact.
We think we’re still in that type of secular trend today.
Election & Economic Outlook
Maryanne Bartels:
Regarding the election, the markets really didn’t react much until the debate between President Biden and former President Trump. After that debate, markets began pricing in a Trump win.
Then Biden dropped out and Harris became the candidate.
Right now, though, markets are more focused on the Fed, interest rates, and the economy than on politics.
Polls have tightened considerably. Harris has made major gains, and many indicators show the race essentially tied.
We never recommend positioning portfolios based solely on who might win an election because history shows the long-term impact is usually limited.
Instead, investors should watch:
- Inflation
- Unemployment
- The “misery index”
- Market performance heading into elections
If inflation and unemployment are low, incumbents tend to perform well. If both are high, power tends to shift.
At this point, I think it’s simply too close to call.
One thing I do believe is that no matter who gets elected, next year could be choppy because of deficit concerns.
The first year of a presidency is often more volatile because new administrations tend to implement policy changes early in the cycle.
Q&A Session
Eric:
You mentioned before that corrective market moves often follow “W” patterns where markets pull back, recover, and then retest the lows.
With this recent rally, do you still think we’ll retest those lows?
Maryanne Bartels:
Yes, I do.
When the VIX spikes as high as it recently did — the third-highest spike in history — you normally do get a retest of the lows.
I’d expect that sometime between September and October.
October is known for major market lows:
- 1929
- 1987
- Many important bottoms historically
If we make another important low, it’s likely to happen in October before launching a year-end rally.
You don’t necessarily have to revisit the exact lows. Sometimes you make a higher low, and sometimes you slightly undercut the prior lows.
What matters most are market internals:
- Are there fewer sellers?
- Is volume declining on the downside?
- Is volatility moderating?
If so, that’s a sign a major bottom is forming.
Eric:
What do you think is the best risk-adjusted way to gain exposure to AI?
Maryanne Bartels:
The key players are concentrated:
- Nvidia
- Microsoft
- Amazon
- AMD
Nvidia is currently the dominant player because of its platform approach.
But for broad exposure, I think the NASDAQ 100 is still one of the best diversified ways to participate.
The most important thing is diversification.
Nvidia went from 140 down to 95 intraday recently. Many investors can’t emotionally handle that volatility.
That’s why proper asset allocation matters so much:
- Stocks
- Bonds
- Cash
- Private markets where appropriate
And then rebalancing over time.
That discipline is what creates long-term wealth.
Eric:
Can you touch on interest rates again and where you think Treasury yields may go?
Maryanne Bartels:
Historically, interest rate cycles last 20 to 30 years. But the cycle from 1980 to 2021 lasted roughly 40 years.
We believe 2021 marked a generational low in interest rates.
I do not think we’ll see zero interest rates again in our lifetime.
Long term, we think:
- Inflation trends higher
- Interest rates trend higher
- We could eventually see 10% interest rates again someday
Near term, however, we think rates are coming down.
I believe the 2-year Treasury is forming a major top. If it breaks below 3.5%, I think it could eventually fall toward 1% to 2%.
That would likely imply a significant economic slowdown or recession.
That means:
- Mortgage rates could become attractive next year
- Borrowing costs may improve
- Fixed income could perform very well again
The classic 60/40 portfolio may finally start working properly again.
International Markets
Eric:
Any opportunities overseas?
Maryanne Bartels:
I think Japan is in a new secular bull market.
Manufacturing is moving away from China, and Japan stands to benefit significantly. Japan could also become a major semiconductor manufacturer over time.
The issue is the yen. I think the yen will continue depreciating versus the dollar, which helps exports but hurts U.S.-based investors unless you hedge currency exposure.
India also looks attractive:
- Growing population
- Educated workforce
- Strong long-term growth prospects
Europe has lower valuations than the U.S., but it lacks major technology exposure.
I think Europe may outperform after 2030, but probably not during this AI-led cycle.
Sector Outlook
Maryanne Bartels:
I’m not a big fan of small caps.
Over 40% of small-cap companies don’t produce earnings.
If the economy slows, small caps are not where I want to be.
I prefer:
- Technology
- Energy
- Industrials
- Utilities
- Select REITs
Energy remains my favorite value sector:
- Great balance sheets
- Strong cash flow
- Attractive dividends
Utilities also benefit from AI because of rising electricity demand and grid modernization.
Infrastructure spending from legislation like:
- The Infrastructure Act
- The CHIPS Act
- The Inflation Reduction Act
…should continue benefiting industrial companies.
Closing Remarks
Eric:
Any final comments before we wrap up?
Maryanne Bartels:
When markets get volatile, remember that patience is a virtue.
That’s probably the best advice I can give.
Eric:
Thank you again, Maryanne, for joining us. We really appreciate your thoughts and commentary regarding markets.
We’ll continue sharing market material and commentary following today’s discussion.
We’ll also have another market and economic update call on September 17th at 4:00 PM, so mark your calendars.
Again, all of this is meant to be educational in nature, and we hope it provides valuable insight.
Maryanne, enjoy your time overseas. Tell Taylor Swift we said hello.
Maryanne Bartels:
I will. Thank you.
Eric:
Thank you everyone for joining us. We hope everyone has a great afternoon and evening. We’ll see everyone next time.
Good night.
