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In episode 198 of AWM Insights, we discuss the current economic landscape focusing on tariffs, valuations, and the power of diversification.
AWM's Chief Investment Officer and Partner, Justin Dyer, and Portfolio Manager, Mena Hanna, explore the recent market behaviors, the Federal Reserve's insights on tariffs, and the ripple effects on companies like NVIDIA and UnitedHealthcare. Gain a deeper understanding of the fundamental investing principles crucial for navigating today's volatile markets and learn why diversification remains a key pillar in portfolio management.
Key Highlights:
- Examination of market volatility and the impact of recent Federal Reserve testimony.
- Discussion on NVIDIA's adjustments related to tariff costs and resulting valuation concerns.
- Insights into the ongoing importance of international diversification in investment portfolios.
- Analysis of the market's reaction to UnitedHealthcare's disappointing earnings and guidance.
- Reinforcement of investing fundamentals like diversification and the inherent unpredictability of markets.
Quotes:
- "Valuations matter, especially during times of stress." - Mena Hanna
- "In the short term, markets are voting machines; in the long term, they are weighing machines." - Justin Dyer
- "Diversification really is fundamental. It's a key pillar." - Mena Hanna
Creators and Guests
What is AWM Insights Financial and Investment News?
A bite sized discussion on timely financial news and investment topics, to help you maximize your net worth and wealth for the next generation with Justin Dyer and Mena Hanna of AWM Capital.
AWM Insights: All right, we're back.
A w Insights, uh, is here.
It's a, it's a shortened holiday week.
Uh, so we're recording this
on Thursday, April 17th.
Markets are closed
tomorrow for Good Friday.
Um, and I don't know if it's 'cause it
was a, a shortened week or, um, I don't
know, everyone just needed a little
bit of a breather, but it seems like
this week, uh, it doesn't seem like
it, it markets did behave somewhat.
I say that, uh, word somewhat, um,
somewhat tongue in cheek, if you will.
'cause yesterday actually was
a, was a pretty big down day.
Um, I don't think we would call a
week with a 2% plus negative day.
Um, a quiet week.
Per se or in, in, in normal times.
But given the volatility we've
been experiencing it, it's been
a, a little bit of a reprieve.
Um, so maybe we just start there.
Just give us a quick, uh, uh, refresher
Mina on what happened or even update
for those that, that weren't paying
close attention, um, which you should,
that should be most of you, hopefully.
Um, what happened in
the markets this week?
What was the cause of that,
that, uh, that drawdown?
Yeah, so we started the week having
a little bit of a recovery from.
All of the craziness with
tariffs and changing valuations.
And on Wednesday it sort of
was a thunderstorm, but a
thunderstorm feels like nothing.
After a hurricane, we had some
information from the Federal Reserve,
uh, just testimony from Jerome Powell
on tariffs, the impact on the economy,
the impact potentially on inflation,
how it could be negative, how prices
might move away from where the Fed.
Actually wants to lead them.
And then on NVIDIA's front, they are
just factoring in the cost of, of.
The tariffs, um, around
there was around a $5.5
billion adjustment that,
uh, that they highlighted.
So, uh, we're already starting
to see the potential impact of
tariffs on prices and on company
earnings and just total revenue.
Yeah, and probably a lot
more to come on that front.
So we're, we're still relatively
early on the impact of these tariffs
making their way through the system,
making their way through company.
Um, uh, financials, you know, maybe
it, it will all be cleaned up by
the time, so a lot of 'em report.
But, uh, we'll see where we certainly,
uh, saw the, that there was an
impact to Nvidia, like you said.
Um, one thing we wanted to talk about,
given the, um, the slight reprieve in
the, in the day-to-day chaos, really,
there's probably not a better word
to call it, that that's been going
on within the markets over the last.
What, two, three weeks now?
Maybe four.
Um, we wanted to, to zoom out a little
bit, uh, and talk about year to date.
Um, and you know, we, we'll, we'll start
this conversation with the preface that,
hey, don't look at short term returns,
but there's been some interesting just.
Uh, reminders of, of the
fundamentals around investing.
Uh, and, you know, kind of leading,
leading the question I'm, I I'm gonna
ask you here, but, uh, um, some good,
great reminders around diversification,
why we stay diversified, et cetera.
So it'd be great to kind of go
through some of these, the, the data
points that, what's gone on in the
markets, uh, where markets were, were
to begin the year where we are now.
Um, and, and the great lessons
that we can always remind
ourself from, from this period.
Yeah, it's definitely been a rocky year
and I think through times of stress,
what we see is a return to fundamentals
as you were highlighting where.
A few, a few points I'm gonna make,
but you just returned to the core
principles and core tenants of financing
and in of finance and investing.
So since Liberation Day and, and the
subsequent reversal, we saw a pretty
substantial outperformance still in
international and emerging market.
Positions.
that is to say that international
diversification, even though a
lot of people have been down on
it since US markets have done
and domestic markets have done
so well, there is a place for it.
And international
diversification is powerful.
It's a powerful way of reducing
risk and also capturing
return during times like this.
on the other hand, valuations matter,
so especially what we've been seeing
and what we've seen this week.
With the NASDAQ being down
yesterday, Wednesday, 3.1%.
On the other side you saw the Dow and the
Russell 2000, which represents smaller
companies typically at better valuations.
Those were down 1.7
and 1.1%
respectively.
So you are seeing more negative impacts
hit companies with more stretched
valuations and investors rotating.
Into companies that are
valued more attractively and,
that's really the fundamental
component is valuations matter.
During times of stress, investors
will care more about valuations and.
Especially during times of stress
and uncertainty in domestic markets,
investors will take opportunities
globally and internationally.
Yeah.
there's a great quote.
I say it a lot in the short term.
Markets are voting machines in the
long term, they're weighing machines.
One of the challenges, you don't
know when they're gonna change from a
voting machine to a weighing machine.
certainly in times of stress.
They generally do.
And that's where the fundamentals
really come, come into play,
fast or, excuse me, rewind to.
The end of 2024.
The general narrative was American
exceptionalism is going to continue.
We're gonna have a new wave of
M&A activity, or a substantial
pickup in M&A activity and IPOs.
And fast forward to today, I don't think
anyone would've guessed we would be
in the position we are in, presently.
So not only, is it a great testament
to some of these foundational aspects
around diversification and portfolio
management, but just a reminder that.
Predicting the future is
incredibly difficult, Um, I'm gonna wrap,
uh, with, um, some news that happened
today, but again, just kind of try to
extract these, these, uh, these examples
from the present day and extrapolate
them to some of these core tenants.
So, uh, today, specifically,
United Healthcare came out
with earnings and they were.
Terrible.
Uh, I, I think is a fair way to say it.
And there was a really
interesting market reaction.
So why, why don't you walk us
through, through that Mina.
Yeah.
UnitedHealthcare reported bad earnings and
also negative forward guidance, which is
just forward earnings projections based
on an increase in the cost of care and
general inflation that is just impacting
their costs, um, on the front end.
So the, one of the interesting
things is if you go and look at how.
Analysts on Wall Street and at at
some of the biggest institutions
actually valued UnitedHealthcare.
They valued it as if it was trading at
a discount and today, immediately, uh,
at the start of trading it started.
Trading 20% below what
it closed at yesterday.
So trading at a discount, but
still got absolutely hammered on
price, and that pulled the entire
Dow Jones Industrial Index down.
So that's one small company.
The interesting thing is.
The Dow Jones represents
30 industrial companies.
They're price weighted, so
they're weighted based on how
much a cost of each share is.
United Healthcare, I believe,
was trading at $550, so it
represented around 11% of the index.
It was the most conscious
traded position in the index.
When that happens, when you get a massive
down day from the largest position,
obviously the index is going to pull back.
And that's exactly what we've seen.
And really it's a testament of not
taking individual stock risk and not
trading stocks based on what you know.
Analysts tell you what potentially
your friends in finance might tell you.
Diversification really is fundamental.
It's a key pillar.
You know, going back to fundamentals, you
just, you need it to ride out these waves
and not get burned by situations like this
that are just bound to happen in markets.
Yeah, 100%.
Awesome.
Awesome little summary there.
Hopefully, uh.
These little nuggets were
just helpful reminders.
And again, uh, just tying back our
philosophy to actual data, we're,
that's what we're doing here on
this, on this, uh, this podcast,
bringing the present day news.
To our portfolios and
how we think about that.
So hopefully it's helpful.
Hopefully these reminders, um, uh,
give you a little bit more context to
the why, the philosophy behind how,
how we're constructing portfolios,
how we're managing money, um, and
yeah, overall just beneficial to you.
So we'll wrap there
again, uh, shortened week.
Um, not necessarily a
shorter podcast as a result.
I just looked at the
time, but we're all good.
Hopefully, uh, you enjoyed
this one and as always.
Own your wealth, make an
impact, and always be a pro.