S&P 500 near all-time high. Asks if the move makes sense as investors look beyond conflict and oil prices.
speaker1
Monica DiCenso
Yes, the move makes sense. Enthusiasm is being pulled forward on the assumption the war dissipates in weeks/months, coupled with acknowledgment of very strong earnings - expecting double-digit growth for a sixth consecutive quarter.
Markets were flat/down for months while earnings estimates rose, led by Tech. However, oil prices are higher than six weeks ago, raising business costs, Fed cuts are deferred, and other world regions may suffer more than the US.
speaker1
Monica DiCenso
The key question is multiples. If concerns continue and oil prices stay high, will people pay 20+ times earnings next year? That's the risk. The US consumer gets tax benefits to offset higher oil, but if prices stay elevated through summer, that benefit is eaten away. This debate may cause markets to trade in a range after the rally until there's clarity on oil price duration.
What to do now? Consumer discretionary and industrials are off highs. Another guest said Mag 7 was 'stupid cheap.' Do you just go with it?
speaker1
Monica DiCenso
This rally is a gift for panicked clients - a great time to reposition. Consider moving out of Tech (most are overweight) and into underperformed areas. For consumer discretionary, you must believe oil prices come down. Financials are underperforming in a benign rate environment; deregulation could be a reason to lean in. Private credit has negative sentiment. Also highlight Healthcare/Biotech as AI beneficiaries beyond Tech.
We've been fixated on Iran/oil, but didn't solve AI malinvestment or whether private credit is a festering issue. It seems we've been digesting it. Where does private credit sit on your worry list?
speaker1
Monica DiCenso
It should be a concern - it's a higher-risk part of fixed income. Gates are a good thing; they stop a 'run on the banks' and help manage risk. Be careful of too much exposure to software. I'm seeing institutional clients adding to private credit here, using the fear as a time to add.
Some see it as opportunistic - opaque vehicles, retail bails, smarter money steps in. Comes down to correctly identifying underlying worth, especially with software companies.
speaker1
Monica DiCenso
There's risk in software, especially investments made at higher valuations - expect write-downs. It's not 'smarter money' but 'patient money.' There's a mismatch of liquidity needs. If you're a patient investor for 3-5 years, why not pick up stuff at a discount?
PIMCO bought $400M of Blue Owl's private credit debt issue, taking the whole thing, saying they think it's fine - points to patient money.
speaker1
Monica DiCenso
It's okay if you need liquidity - move on. No significant markdowns seen. Just understand what you're getting into; evergreen vehicles have more investors who may not understand the liquidity profile.