As stocks hit records, Wall Street veteran Art Hogan explains why markets still have room to run higher, and how to set up your portfolio for success.
Transcript:
CAROLINE WOODS: So Art, the S&P 500 is at or near record highs. Are you a believer or skeptic of this rally?
ART HOGAN: I’m certainly a believer. I think the reason we got here is pretty intuitive. We started this year in markets and were quite defensive at that. In general, people wanted to get out of risk assets. They were selling things like technology, communication services and consumer discretionary. And buying things that were very defensive, like utilities, and health and consumer staples. And that was all because the front end of this new administration’s policy rollout was really the tough medicine, if you will. We had immigration and closed borders and we rolled out a very chaotic trade war. And that really encompassed. Investors attention all the way through to the beginning of the second quarter. Once we got past this April 2nd liberation day and got over the hump of some worst case scenario predictions on tariffs. Investors are starting to get a little more comfortable that some of the good policies might flow through. And what does that mean. Certainly tariffs not as high as we thought they would be back in April. Second but other things like passing a bill through Congress to continue the corporate tax rate that we have. And the other is the possibility of less regulation. And some of those things, the taxes and the less regulation would serve as an offset to obviously higher prices because of tariffs and slower GDP growth because of less immigration and and a shrinking labor force. So to me, I think we’ve kind of crossed over the rubicon on some of the worst case scenarios. And now market participants can start looking at things and saying, well, lower corporate taxes is probably good. The Fed cutting rates at the end of the year. Probably a good thing. And certainly we’ll start to feel the effects of less regulation. We’re starting to see that in some of the big banks already.
CAROLINE WOODS: But is that all priced in with the S&P 500 at record highs. Is this as good as it gets or can the market ultimately move higher?
ART HOGAN: You know it’s interesting. Every time a market comes to an all time high after having spent some time selling off, people get concerned that this is as good as it gets. And if we didn’t have all time highs with the S&P 500 would be back where it was when I started working at 800. So, you know, this is not as good as it gets. I think we’ve got some good news in front of us, not the least of which is we’re likely increasing everybody’s productivity because of artificial intelligence. We’re likely seeing a lot of smart investment going on in data center and infrastructure build out. And that’s why the industrials are one of the best performing sectors. I think that’s very healthy. We’ll likely see more publicly traded companies than we have right now. So if we went back 15 years, there was 8,000 publicly traded companies. Right now, there’s only 4,400. So the fact that we’re seeing IPOs come to market and having a warm reception, I think is a positive. But I think the most important positive is earnings are growing and estimates are actually going up. Last week, FactSet showed that S&P 500 estimates for this quarters quarterly earnings reporting season just went up. So beginning of the year second quarter earnings look like they might be about 14% year over year. For the second quarter. That went down as low as 7.5% We’re back up to 10% now. So that’s a good sign. Earnings are heading in the right direction. And a lot of excitement around artificial intelligence is certainly going to continue to be a tailwind here.
CAROLINE WOODS: On that note though, are the impact of tariffs has yet to really make a dent on corporate earnings or even on inflation. Do you expect that to change in the second half of the year?
ART HOGAN: I do, yeah. We’re going to start to see some data reflect that. Now data is going to be kind of messy because we had a huge pull forward by both companies and by individuals in the first quarter where, you know, you went out and bought a new refrigerator in March. You’re not going to buy another one in July. So multiply that by hundreds of millions of decisions that are made by both companies and consumers, and we’ll see a slowdown in purchases of goods that’s going to offset some of that initial impact of higher goods pricing.
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