Equities Enter Correction as Tariffs Weigh Down Markets

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Joining us right now, and this is a timely conversation because we're like the stock market, We're all gonna die. And maybe we look at gold mac Dasic joins us. How to fixed income strategy from Maryland for Bank of America private bank? What's the level of sweat among your clients? And don't give me the Brian Mooyn and answer blah blah blah. Okay, what's the level of panic out there on a Friday? Not that bad, Not that bad at all. That's what we're here.

Retail has been surprisingly resilient, looking to put capital to work.

Week.

You are not seeing panic, specially they're going to the equity markets from most of the two legged Vidiuser clients that they're directing very maturely to this market environment.

Ran listens every morning, So don't sweat. But is it just because they think things and systems will adjust? The Trump message from the White House and we'll move forward.

I think they have a very good ability and they have out of the past couple of years to sort of look through the noise. And at the end of the day, there is that's obviously economic uncertainty here, and I know outside a certain sectors, certain geographies, there are not a lot of massive layoffs. Right the corporate sector is still not laying people off.

So even if there's a.

Slight uptaket unemployment from the lows, until you actually start to let people go into you're afraid of your own job, your brother in law loses his job, your wife loses their job. Until that happens, people are still relatively sanguine. And again we're not seeing any sentiment, significant sentiment changes from retail with regards to the equity markets, which is impressive.

All right, Well, how about in fixed income space here? I mean, you can sit there at a two your treasure and get darn your four percentiest. Do you do that that's not a bad living or do you take some credit risk?

So we don't think you need to take a lot of credit risk, but we would like people to certainly be longer duration than a sort of two to three or on average, right the radio clients should be around probably think five to six years. It depends individual client, But end of the day, the bomb market average duration is just over six. We really don't want clients to be too short to whatever their strategic duration target is

Current It's interesting, I mean, over the last couple of years, when I look at the Bloomberg fixed income total return screen, where I've seen the best returns has been with risk high yield leverage loans actually, and those two are actually underperforming this year. That's kind of a change, at least definitely underperforming.

Again, not surprising to see credit both high and IG underperform the index. With equities, they have a higher correlation to equities, But again for the retail client, depends on your time frame where you might see some market value changing in your corporate bounds relative to treasuries spread widening. If you're strategically long credit year in and year out, you're getting that extra yel over credit losses, you'll get

Are you throwing a brick? It's some you know advisor at Bank of America who goes back to road sixty forty strategy. Is it like a dinosaur or is it germane today?

No, no, no, we do not think it's a dinosaur at all. Maybe I'm the dinosaur, but we don't think it's a dinosaur at all. We had a lot of concerns obviously that bonds were no longer doing their jobs. You needed something else to replace. Equid to replace bonds as diverse for equities, commodities was given as a particularly good one. We were never buyers of that at those valuations.

What's the biggest mistake high networth retail makes and fixed income.

Historically?

Blog? Is it just that simple?

It's been the opposite. It's been the opposite again for the past seven years. The issue has not been yield hoggy, it's been afraid of duration. So scarred, so scarred by those double digit losses in terms of high quality fixed income.

That's one of the.

Rough I mean historically rough. In twenty twenty two.

It was very rough.

Again, when you're in when you're negative two percent real yields, there are not a lot of good things that can happen, right, but that that negative two to two percent move, that four hundred basis point move and real rates. Our opinion, generally speaking, that was the bond fair market.

Yep.

How about I mean mortgage backed securities. I'm seeing some of the best returns in fixed income and mortgage backed securities. What's going on in that market?

We like mortage backed securities generally speaking. Again, we're neutral cross sectors, but within sectors we do like mortgage backs because what's the rest of the mortgage back. You're always going to get your principle and your interest payment back. You just don't know when. If people prepay, you get more cash using your rates are lower. You don't want it rates go up. The bonds extend, you get less cash flow, and you'd like to reinvest in higher yields.

With all the politics that's going on, folks, we're waiting for a conversation or rehoarded in conversation with a gentleman from the Netherlands, mister Routie now at NATO, the new leader of NATO, and we're looking forward to that here in about four minutes. We hope we're lining up the antennae in the satellites starlink Matt Disick with US with Bank of America. I look at this and the number one thing has been the gift of cash. If you

And if you maintain the idea that the FED is focused on getting back to two percent inflation or very close to it, well then you know, no matter how aggressive fiscal policy is, it can't really change demographics. It's very tough to change the population dynamics, and so real rates again that they have to be you know, fifty

To be really valuable on a Friday. Thank you so much. Mentisic for this will be with us here again. Next time we'll talk rugby at University of Pennsylvania.

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This is a joy, as we had Sam Stova earlier. Now we're really gonna dive into the adjustments of someone who's got in the market so right. John Stolfiz in correction, half correction, partial correction, has said be comfortable on equities. He's chief investment strategists at Oppenheimer. This morning, are you still a bull? Yes?

I am Tom still a bull? Why very much? Because when we look at the way business is navigating these waters, the earning season that just ended Q four earning season. You've got double digit gains and seven out of nine sectors only two sectors negative. One was double digit earnings negative. That was energy. We're figures because we're a wash in oil right now. But the seven sectors that were double

Okay, well, let's be dynamic. Let's pretend we're on a couch forty years ago. I'll do my lur Rukaiser imitation and you do your John Stolfi's imitation. It's seven eight thirty at night, the world's turned upside down, and Uncle Lou's they're having us calm down. How will corporations adapt to this Maelstrom? What does securities research at Oppenheimer's say, Well.

I think what what is generally the thought here is that corporations have been under due rest now for over sixteen years. In many points we had the great financial writing.

It has been under duress. Now come out.

You don't know them recently, but if you look at it over the last few years. I mean, it had tough times, and some of the other texts did. But when you look at the markets and managements, how they've operated across the sectors, it's great financial crisis, the pandemic, the disruption of the global supply chain, the levels of inflation that were hit, the FED policy tightening, no recession. The consumer is still spending. It's the resilience Tom, That's

Some are concerned about the consumer there, John. We had some of the airlines earlier this week take their earnings down. We had some retailers like Coals take their guidance down here maybe suggesting that all this uncertainty out there in the marketplace.

The news, the noise.

Maybe impacting the consumer. How do you think about that.

Well, Paul, without a doubt. You know, we had the FED raise eleven times and then on pause at nine at the higher end and just started to cut last September. Just what fifty bip September, a pair of twenty five BIPs in November and December. So very much. It's no doubt you're going to feel the slowing because people are feeling a pinch but American consumers tend to move towards discount stores, private labels. We tend to keep shopping. The world criticizes for all life of consuming.

But what if whatever the percentage is fortif the fancy people in America are keeping American consumption going, does Oppenheimer think that is dented and that will push into a diminished revenue growth. No?

Not at this point, We're still looking where we.

Get into, say such a negative error. Come on, I mean, I need some negativity from Stolfus.

Well, to me, it looks like guitar prices are up.

Actually, you know, you know, hold on, let's stop the show, folks right now. We go to Paul Sweeney disciplinarian. Should we have a joint guitar purchase this weekend where Stulfus and I both purchase separate crutches?

I think you jump right in there.

There we go. Okay, continue with John.

There's a child oil.

Now there's a challenge.

But we have seen and what happens if the tariffs affect Sitku spruce, you know, coming in from Canada. There's all kinds of issues there the one thinks of. But the realistic thing is we think that we're moving towards a new globalization. We think probably a point where with all this pressure that's been put on by the tariffs, the fact that we are the consumer of the world in size, the rest of the world has over capacity because over the last forty years they've been building capacity.

I mean, Paul, the sophistication of YouTube live chat is killing me. Tanner, Good morning epiphones for everyone.

Oh yeah, there you go here, Hey, John, I know at one point you had an SMP target of around seventy one hundred, I think the highest on the street.

You sure know how to hurt a guy.

So what are we doing here with this call?

Oh that's a great one, Paul. What we're going to do with that is that it's under review at this time, but we've got to figure. It's very early in the year. Yep, this has been a very the dark pitch book. The negative thought really has over been overly projected. Likely, so let's take a look. But we'll probably look at it and see how we go. And we got into the second quarter.

John Sulfas for this Lapko were thrillies with us. We're going to continue with mister Solphus, a lengthy conversation this morning. Good morning on your commute. I know it's a Friday. People are starting to look at March madness, and Sweeney's totally unfocused. What's his name sprained his ankle, Cooper Flag, Cooper Flag sprained his ankles. Sweeney had to be medicated with a double tang mimosa this morning just to get to the show. Oh, there's lots of distractions with John Stolfus.

I do. I'd still push against it. And I think that the reason why is where we are today is we are at a watershed period of innovation that is driving that can drive all sectors here. And it's not just about tech. It's about what tech can do for the utes. It's what it can do for healthcare. It's what it can do for repurposing buildings and real estate, for finding resources in consumer staples, designing products for consumer discretionary This is a very this is you know, it's

Oh you're a new kid.

God bless me on that way. The thing is, I've been through every boombust and recovery cycle, and generally, when we look back hindsight, I perfection says, gosh, if only we bought more, if only we backed up the truck. When people get so negative.

Crash of eighty seven, which was, we don't need to go into it now, folks, there's too much valuable time here. With John Stolfiz Crash of eighty seven. I walked in the door and she handed me a triple my.

There you go.

She took it, She took it off of a normal Martini class and put it in a Rocks class. Yeah.

October nineteenth, we walked out of ne York Stock Exchange. I went to the pig and poke or something.

Yeah, that's what we did. And guess what, life went on?

Life went on exactly three months later? Where were we exactly back on?

My aunt had turned eighty that year in August, and I learned a lot about investing from her. Her first phone call to me was the first words were, Johnny, what should we be buying today? So that's that's where I come, folks.

Bronze it what you just heard there. What was her name? Mary Stolfer's aunt Mary, Aunt Mary. Okay, in the cannon of Bloomberg surveillance bronze it to the memory of Aunt Mary. What did she say?

She said, Johnny, what should we be buying today? That was our exact words.

I'll go to Aunt Mary again, what should we be buying here? If? If you feel like the world's not coming to an end here?

Great question was you know ap and I doesn't let me talk individual stocks because I managed my the Friday. I can give you. I can give you the sectors, the worst performance, sectors the worst performance I want to own consumer discretionary, infotech, communications services, financials, industrials, those look good to me. You know, they are at the bottom of performance from the peak coming down there. And you know, when it comes to healthcare, the utes, real estate, and staples,

I mean, a lot of folks are feeling like this pullback in the market is kind of a self inflicted problem here with all the talks about tariffs and what that means for potentially growth and inflation. But that talk in that environment. I don't see that changing anytime soon.

Well, you know, I think it incrementally it can begin to change. I think the first thing is hopefully fingers crossed today we don't see a government shutdown when they take that vote, that gets taken off the table. Then beyond that, you've got to figure that. You know, it was Bloomber intelligence that I think about a month ago said that if twenty five percent tariffs were put in against Mexico and Canada, both of those countries would go

Right Valuation? Did this pullback here hasn't made valuation attractive or maybe just less egregious for some people?

Well, I think for those who were thinking it was egregious, it's less egregious. And for those who thought that it was primarily because demand for stocks had gone up so broadly and people, you know, it's no longer bucktail party stocks that people that the private investor is doing. They're looking to replace what used to come from social security

Question. Didn't we have Sam Stovall a couple of times this week? John, It's just simple if with things beaten down, do you buy things that have gone down less or do you buy things that have been beaten up?

I think it depends upon the quality more than anything else. So if it's something that has been really battered, happens to be good quality, good management, good prospects for the balance. Otherwise one thing you want to really emphasize quality here.

I got to get this in. We've got a huge response on YouTube this Thank you so much. I mean, come on the epiphone for thirty five hundred bucks with the P ninety pickups. Explain to Joe Pass what the great jazz guitars. Joe Pass explained what P nineties do because all these kids out there, they're like Seymour Duncan Rocker, rocker, What a P nineties do that give you that sound?

The P nineties is a single coil a type pickup instead of a dual coil, so it'll be more prone to buzzing and hum. But that said, it has a really good fat tone when he's rolled around us. There's a roundness and a very rich sound that you get. But I prefer a PAF type pickup, you know, whether it was built by DiMarzio or Seymour Duncan.

John Stoles, thank you so much.

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We're gonna squeeze a two hour discussion in here with America's giant and Treid Douglas Erwin, his professor at Dartmouth. He's absolutely definitive. We mentioned Adam posing yesterday and Sad Bone of the Peterson Institute. It's real simple, folks. The must read this weekend The Incoherent Case for tariffs Doug Erwin. In what way is the White House incoherent?

Well, in several ways, unfortunately. First is just trying to justify what it is they're trying to do. What is the mission? What is the goal? What is the end game that they want to accomplish. Is it revenue? Is it bringing back manufacturing jobs? Is it reducing the traid down? Is it national security? It's all the above. And the problem is is we just draw on an insight by Jon Tinbergen, an old Dutch economist who won the Nobel

First and foremost, the Bible on this, folks, this is when Blancheflower was younger, Slaughter was younger, Doug Irwin was. I got a graduate school against the tide and intellectual history of free trade. Here's my book review. Shut up and read it, Doug Irwin. This morning, I go to John Stuart Mill nineteenth century early and he's arguing about infant industries. It is if President Trump wants to bring infant manufacturing back to America, can he do that? Is

Well, it's interesting you bring u John Stuart Mill, because we're talking about the nineteenth century, and of course he refers to William McKinley quite a bit, another nineteenth century president who imposed tariffs to try to keep industries here in the United States. You know, you can do it sometimes, but the cost can be very high. You know, many

So, Professor, depending upon the day, the administration has different reasons for imposing terrffs, whether it's to you know, choke off drugs come into the country, or immigration or the other. Some days it's trade deficits. I'm just not sure. But for trade deficits, let's just stick to the economics. If the US one is a trade deficit with a particular country, is that inherently a problem? And if it is, do tariffs address that?

Well?

Generally, I mean, we can have a debate about whether reducing the trade deficit overall not a particular bilateral balance, but the trade deficit overall is a good policy or not, or whether we should make that an objective.

But let's say it is.

Then the question is you raise, is you know, our terraces and a way of achieving that, and generally not, because when you impose tariffs, the dollar is going to appreciate and imports may go down, but exports are going to be hit as well because of the appreciation of the dollar. In addition, there's foreign retaliation. So yes, import teriffs will reduce imports, but then foreign terff retaliation is

Do tariffs raise revenue for the US government for is that efficient way to do that?

Well?

It can, yes, So we get about two percent of the federal government's revenue today has raised through the tariff. But The idea that you could balance the budget or pay for tax cuts with a big increase in tariffs is really not going to work. And one of the problems is that imports are very sensitive to tariffs, so as you raise tariffs, the volume of imports is going to shrink. It's a tax base that's going to shrink and disappear the more you tax, so that revenue is

We are honor that Douglas Irwin is with us. I'll put out on social his Foreign Affairs article. I'm not going to mince words, folks. A subscription to the print Foreign Affairs magazine is literally the price of a fancy martini in Manhattan, Okay. And it is the bible you throw to your kids and say, shut up and read Douglas Irwin, shut up and read outam imposing and on we go. There's a lot of people out there, Professor Irwin that think fancy ivy League professors are talking about

This is a really big issue, and you put your finger on something. When we try to put use tariffs to adjust these things, we're sort of missing the boat.

Please comment and then the leadership on this, folks, came home William Klein, who was hugely influential for me, Douger. When the President loves to talk about a bilateral approach or even some would say a unilateral approach, William Klein would say we live in a multilateral world. Is the dreams and hopes of sixteen under Pennsylvania Avenue going to discombobulate because we refuse to look at this multilaterally.

I think it's a shortcoming of their approach. And first of all, I mean it has to start with sort of foreign passing, recognizing that we have allies and people that are democratic, market oriented economies, and we're all sort of trying to achieve the same thing. They're not our enemies.

There's a wonderful.

YouTube video of Ronald Reagan giving one of his Saturday radio addresses which is almost speaking to Trump from the grave. It's talking about how our allies are and our trading partners are our friends, not our enemies, and we really have to work with them if we're going to confront the China threat and other threats around the world. So you can't alienate everyone and think that everyone's sort of

Professor, thank you so much. I'm not going to mince words. Just buy against the tide. Just put it on a coffee table. You don't have to read it. Just put it there at school. It's got a beautiful light blue cover and all that. Dougerwin, thank you so much it dart Min's this morning.

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Guess what, folks, this is really the most important discussion of the day. Sheila Cagilos with Jeffreys, and she brings in bulletproof engineering cred along with their economics. It's on the airline industry. We're going to talk about the state of the industry now. But Sheila, I'm just going to cut to the chase. Every house on the East Coast is looking at the Try State area on my place. I've got a lovely place, folks. I counted twelve airplanes in the sky like a couple of weeks ago, a

I do, but I also think this is where our airline and defense coverage come into play exactly.

That's why we're here.

Yeah, I met with that.

I can tell you it's a four hour conversation.

I think it's very important, you know, with the DOGE cuts which have impacted defense, whether it's the manufacturers or the service names, to realize how important government employees are actually.

To the system.

Within the system of the US. I understand a five percent headcunt cut that exists at banks all the time, but to do it within government employees where we tend to be understaffed. The FAA, as an example, air traffic controllers in Newark are understaffed and we're flying forty percent more passengers through that airport as an example, So to fire five percent of them in a blanket, you know,

Do those people Paul's got the Gulf Stream, Scott's still here.

In a couple of days, he'll be fine.

Out of EWR. Do the flight controllers have the power to say we don't have enough people, we can't do our job.

You know, I know both the former administrator Mike Whittaker FAA administrator, as well as Dan Elwell under Trump administration number one. I do think there's areas where we could cut administrator, cut air traffic controllers. Perhaps we don't need them from twelve am to six pm when there aren't twelve planes in the sky above your backyard. But you know, we might have to fulfill more funding and also technology,

Chill.

Earlier this week, we had a number of the major airlines cut their earnings, forecast their guidance Outlook what happened, because it seems like I'm thinking back to the earnings last season. I didn't hear much talk about that. What happened.

The drastic change is what's scaring folks, so, you know, and it wasn't one thing. That's what I think everybody is concerning for folks. So first it was the safety issues. So let's close up on that. Whether it was Delta or American put these airlines on a marketing hiatus where it doesn't make sense to put out a fly for free tomorrow. Second, corporate travel, we've seen that tightening, whether it's our clients as well, paralyzed by what's going on

Paul, I just looked at the flight. I always look at here and it's down one thousand bucks. Sure, road trip over to Paris.

Yeah, but your the the Euros, you know, not where it was a couple.

That's okay. But I can get tear I can get tear free. Moet shunned down.

There, very good Chila talk. It is about the the the airlines. Where are we in terms of capacity? Are they at? Are they where they need to be? Where they want to be, Because it still feels like every plane I get on is full.

So yeah, I think we're watching the data really closely over the next two three weeks, so forty percent of airline earnings are in Q two, so it's go time for them. Let's see what happens from March fifteenth through April fifteenth. April ninth is one delta reports. But capacity, to answer your question, TSA, volumes are up about one percent. Capacity splatsh. So we've seen capacity tighten. That's been the story of the last eight months. But we're seeing capacity

What what do airlines typically do if they do see a shift down and demand, whether it's just consumer uncertainty around tariffs or whatever. What do they do on the cost side to adjust for that?

Typically very difficult. Yeah, you know, you don't have many variable costs. A lot of it is fixed. Your planes fix, your pilot's fixed, your schedules, your gates, so very little you could do. You could maybe add red eye find to add incremental opportunities. That's what Southwest is doing. But that's what makes airlines trade up five to seven times PE.

They could pull Blue.

Button Detroit Lions button. Then let's start there. How trothy is the business right now? I mean, is it going into one of those ugly periods where it's tough to maintain free cash flow or even revenue pop?

I think depends on the carrier.

Really yeah, it's not an industry thing.

I think some will be better off. So Atlantic is still holding in well, Tom still checking out his flight to Paris. I think Atlantic is strong, but how long does that last?

If all of Europe Pacific?

Right now?

Pacific is okay as well the very limited capacity. Luckily Boeing is not delivering many seven eight sevens. Airbus isn't delivering many eight three.

Fifties single best idea right now.

I actually think Boeing, despite tariffs, despite Macro, despite everything, folks were, you know, the equity offering was oversubscribe when Boeing had fifty five billion a debt. Now they're down to twenty five billion a net debt stocks at the same exact price. Folks have waited six years for planes. Air airlines are not going to cancel yet, and then the aftermarket put in a ge or an F TI F ties a smidcap name I cover it's it's been

Well, I'm Boeing. Do American companies, says United, Delta, the others you know better than I do. Do they want to buy Airbus or is it just like we can't buy to lose its un American?

No, they do.

I mean, but the US is only twenty to twenty five percent of the sky skyline, you know, it's not as it's not fifty percent.

Boeing selling to who? Then who's their dominant? Who's there?

Is interesting?

Because this is why I think Boeing's quite interesting as well as Airbus. We have one hundred and seventy five operators buying planes in twenty twenty five. That is very well diverse across the globe.

Where is Boeing in terms of you know, I've been told by a lot of folks what drives this name is can be the number of deliverables on the seven three seven.

That's all that matters.

Okay, So where is the company now and where would they like to get to?

And you have confidence they can get to that seven three seven is about fifty to sixty percent of their free cash flow. You have to assume Defense holds its own and stops losing money. But three seven they were at twenty to end the year. We're now in the thirties. In terms of production, they're still in the twenty five range. They're getting out of inventory, but we have three hundred and eighty four deliveries for this year on the max for contexts they did six hundred at the peaks that I.

Got a squeeze, is said, is there financial integrity improved? Is the systems analysis of Boeing? I got free cash flow negative fourteen gazillion, another year negative fourteen gazillion, now negative five kazillion forward and then finally they flipped positive in twenty twenty six. What's the integrity of that?

Guess it's Defense. Defense has lost three billion triple seven X has lost four billion development programs. And then of course you add the strike, you add DeLay's given you gave away free aircraft.

How's it turned around? How they fix the damn rivets that fell out of the airplane?

It's interesting because I was in Charleston three weeks ago. That's where they manufactured eight epens. They do the three sevens up in Seattle and rent In got reported by a Boeing employee for my shoes not being suitable for the factory floor. And I was like, this is a very stark change to how it's been. You know, they're very the fays integrated into the way.

We were wearing Christian No I was wearing. I was wearing.

I was wearing. I won't give the brand, but I was wearing. Yeah, No, it was it was it was ballet flats.

And so they wouldn't let you on the floor with.

Ballet They gave me an exception, but I was, I was, do.

You buy them? Yeah, okay, do you buy the ballet flats on Madison Avenue the store. If you go in the store, you can only come out with three boxes. I've learned that.

Yeah.

But they they.

Wouldn't let you on the floor in ballet flats.

Nope, they they they I had a solid talk about appropriate you want to see right, So that that comes back to my engineering. I gotta gotta step it.

Up, not Boeing.

So I could say Shila, Thank you so much. Shia with this was Jeffreys. They're managing and I love it. The real engineering integrity there on the aviation position.

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