Given the popularity of our weekly Market in Pictures, we started the habit of picking out a few and going into more detail with our PMs. In this edition, John Luke and Dave spend a few minutes on each of the following:
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- Historic April
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- Consumer Debt Metrics Supportive
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- Earnings
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- Decade+ of US Dominance
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- It Pays to Be Bullish
Hope you enjoy, and please send a note to [email protected] if there’s a particular chart/topic you’d like to see covered next month. Time to swing it around!
3 Minute Read: Executive Summary
Full Transcript
John Archbold
Okay, here we go. It is the 1st of May, after a very, very uneventful April, so I’m not sure what we’re going to talk about here, right? Not a lot happened last month, but we have our head of equity, David Wagner, head of fixed income, John Luke Tyner. Very excited to get going here and hear their thoughts on what we were seeing.
Before we get into all that, of course just to read the disclosure, the opinions expressed during this call are those of Aptus Capital Advisors investment Committee and are subject to change without notice. The material is not financial advice or an offer to sell any product. Forward-looking statements are not guaranteed. Aptus reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs. More information about Aptus Investment Advisory Services can be found in its Form ADV Part 2, which is available upon request.
So very excited to get going here. As you folks have probably already realized, I am not Derek Hernquist. My name is John Archbold and I am a client portfolio manager here at Aptus. Derek was kind enough to let me take over here for this month, so we’re hopping in here, but we’re going to kick it off. And Dave, John, who wants to start off? Who wants to get us going here?
John Luke Tyner
I will start with the normal performance review, and like you said, Arch, it was pretty notable just with the move that we saw in April. I think it was probably one of the more busy months that Dave and I have had with inbound client calls and a lot of worry, and I think we got a good chart at the end to hit on that, but Dave hit it.
David Wagner
So it was a roller coaster of a month, of emotions, price action, everything. I would say that the month ended with seven straight days and the 1st of May made it eight straight up days for the S&P 500. This doesn’t happen often. It’s actually pretty rare. It’s only happened seven times since 2004, and John Luke, was the Zweig thrust officially engaged this month or was it not?
John Luke Tyner
I think it was maybe mid last week. funny tweets.
David Wagner
The old Zweig thrust coming back into conversations.
John Luke Tyner
I think there was like an ultra Zweig thrust that was hit too.
David Wagner
I don’t even want to know what that means.
John Luke Tyner
Don’t know what that means.
David Wagner
Nonetheless, that tends to be a positive that presages future pretty good performance for the market. I think a lot of people would be surprised since the Liberation Day, more to the tech sector and the NASDAQ have actually recouped all of their losses plus some. Well, a lot of the other sectors continue to underperform since the April 2nd date. From there, the market did bottom in the month on April 8th, and since that period of time, international has actually continued to outperform, then it’s EM and then it’s S&P 500 and then it’s small caps. And I think that’s telling you, I’m not sure if this is the market trying to tell us something. I think I’m still dissecting and bringing in more information on this whole international versus domestic debate, but international outperformed on the downside and it’s also outperforming on the upside right now, even when the S&P 500 is being led by the mega cap stocks and the tech stocks that have catapulted the S&P 500 higher for almost five years now, especially relative to international.
So I think ourselves as a team, John Luke, myself, Arch, Brad, Beck and everyone, we’re trying to figure out if it’s a head stake or if this is a changing of the guard. I think one of the hardest things for investors to do is not just try to figure out when the light is going to switch on certain factors, sectors or different stocks from underperformers to outperformers and vice versa. It gets even harder to try to gauge and understand when that light switch occurs when an asset class that’s been out of favor for so long gets back in favor. So there’s a lot going on here right now, but I think that the market has not seen any of that soft data move to hard data as of yet, and so you’ve seen this market rally.
John Luke Tyner
Yeah. No, I think that’s good points. Dave, we have another good chart to hone in on that a bit more. But no, I think we’ll start with this one, looking through some of the consumer debt metrics and as they appear now versus back right before the financial crisis and then again in 2022. And we’ve talked about this a lot. Consumer balance sheets are much cleaner than what they were coming into really that bubble that we saw in the financial crisis, and it’s continued to support consumer spending. It’s continued to support net worth levels where people have the propensity to spend and the wealth effect certainly has been real.
Actually, when we posted this chart internally, it was funny because Joseph immediately responded and said, “Now, let’s see the public balance sheet.” And of course that wasn’t the nature of this chart because it was more geared towards just the consumer and staying the course that the consumer could weather the volatility in market. But really, I think where we’re at is less of a consumer strained issue and more of a bubble, or at least some excess from the public sector. When you look at debt to GDP, you look at how much debt has been issued the last 15 years since when this chart comes into existence, and those measures have grown drastically.
And of course, the Texans go through wealth effects to the consumer. Where asset prices have risen drastically, the US has performed quite well, but when you look at this, you look at also the bottom, which goes through some of the banking capital metrics to look at how safe that banks have got from a capital reserve perspective and debt service ratio perspective today versus where they were 15 or 20 years ago, and it’s quite different. And you’ve seen some articles talking about banks pulling down or being more selective on who they’re lending to, and at the end of the day, that’s their job. They have to make sure that they make loans that they get paid back on. A.
Nd so I think many of these features just put maybe a safety blanket in a way for how bad things can get. When you have a consumer that has dollars in the US, they tend to spend them, and we think that the recession, if there is one, would be driven by job losses, and probably large job losses before that you see a dent in the consumer. So Dave, anything you want to add to that?
David Wagner
That’s the most important thing is what you said at the end there, that basically everything hinges on the labor market, and at least that’s personally my focus moving forward. But I really like this chart because it looks at all the stuff from a relativity standpoint. I think there are so many stories and narratives that can get pulled in as people look at absolute numbers, like, “Hey, we’ve never had credit card debt this high.” Okay. Well, relative to disposable income, relative to net wealth, it looks a lot more palatable. It actually looks pretty good.
So I think this is a great chart to really bring it back, because at the core of everything that created the volatility amongst tariffs, it was, hey, what if the consumer slows down their spending because costs are higher? And I think this shows you that maybe we can weather another slight battle of inflation in the near term. And what I’d really like to see is actually something that came out of one of the compounders’ stocks earnings report, and it was Visa. The CEO came out and said, “Hey, it was a great quarter from a spending perspective.” And like always, someone comes on. “Well, what do you see in this quarter so far? I know it was an earnings report for last quarter, but have you got a little inkling on what’s going on here in the first four weeks of Q2?”
You know what guys? We’re seeing no changes across all income cohorts. People are still spending exactly like they were in the first quarter, spending just like they were last year. A lot of that soft data sentiment surveys that came out, it hasn’t come to fruition from a hard data perspective, and I don’t think there’s probably any other better company to really look towards as a north star to talk about consumer spending than a Bank of America. Moynihan always has a great hand on the consumer itself, but also companies like Visa and MasterCard, and it looks okay right now. Actually, it doesn’t look okay. It looks pretty good right now.
John Archbold
And I think especially you brought up relative, right? Even on the public debt side, not to say that it’s not a concern, but certainly if you look at US demographics, you look at the productive capacity of our own economy and then you look at debt levels to GDP of a lot of other developed nations, we’re still the cleanest dirty shirt. So certainly from that perspective, it’s always important to remember that these things are always a relative game, not an absolute game.
John Luke Tyner
Absolutely. All right.
David Wagner
I like how you named this slide.
John Luke Tyner
Yeah, if you’re a curb your enthusiasm fan, you might notice the name, but this one looks at what’s going on with earnings growth. Obviously, earnings growth expectations coming into the year were rather lofty to some degree. I know there’s a lot of operating leverage and a big piece of our outlook coming into the year was hitting on that. But pair where we’re at now, Dave, on earnings growth, and then maybe some thoughts just on the volatility with the chart next to it comparing the market’s reaction to Scott Bessent versus a few of the other cronies that Trump’s got speaking on TV.
David Wagner
Cronies is a pretty good word for the situation, so nice work. I’ll let you take the political chart. I’ll let you step on that one. These numbers are a little bit stale now that we’ve had a lot of the mega cap companies report, because this chart on the left came out on April 23rd. But unlike Larry David in the Curb your Enthusiasm episode, maybe season 10, he wanted something to yo-yo down. I don’t. I want earnings to yo-yo up, and I think that’s where we’ve been pretty surprised with earnings so far this year, probably in the first quarter, is that they’re pretty good, specifically around the mega cap names.
And if you read my musing that we all put our little hand in and putting them together, was that, you know what? We’re actually kind of optimistic heading interns. We don’t need to make that call. We don’t have to make a call because sometimes we’re wrong, but this is the point where we were right, that you have to play the hand that you’re dealt, and 37% of the S&P 500 is within the top 10 stocks that are virtually driven by the AI narrative and the tech-like proxy nature of some of those companies. And whether it’s Google, Amazon that came out today, I haven’t looked at Apple yet today, but Microsoft yesterday, Meta yesterday, CapEx continues to increase and that’s been driving a lot of the revenue growth. So you’ve seen revenue numbers come in better than expected, which given the nature of their operating leverage, we’ve seen earnings per share growth come in a lot better than expected.
If you separate the year out here in 2025 from the first half to the second half, a lot of the earnings expectations have been only pulled back in the first half, not the second half yet. That’s telling the market like, “Hey, you know what? These tariffs, they could be a short term hit, but long term, I think we’re not a derailed economy.” And that goes back to the slide that John Luke just had pulled up there, that balance sheets at corporations and at the consumer level, they’re still very, very good.
I think one of the misconceptions that a lot of people have when looking at the market, like, well, if earnings are bad, the market’s going to go down. Well, the market’s already been down peak to trough at 21.35% pricing and a lot of negativity. Can the market look through a Q2, so in three months from now, a poor earnings season then? I’d say yes. As long as Q3 and Q4 remain on track, the market is going to weather that earnings volatility and the storm to continue having the path of least resistance, continuing to be higher. That’s why it’s so important that the duration between a tariff ramification as we continue to talk about, hey, tariffs are the spinach. Deregulation and tax benefits are the dessert. The faster we get to this dessert, the market can give you more of an all clear sign. Now, I know I sound pretty bullish right now. I just don’t see earnings, whether it’s management commentary, I just don’t see them being a complete headwind here so far in the first quarter, or even from their guidance.
John Luke Tyner
And I think the point of the chart on the right was a little bit tongue in cheek of just the political volatility, but you notice that the worst in terms of the expectations on Jan 1 and where we are today isn’t small and then followed by mid. And I think if you’ve been paying attention to the tariff news, a lot of the big dogs have figured out ways to get exemptions from a number of the tariffs. Think about semiconductors and high phone chips and things like that, whereas the small and mom and pops have been kind of the most impacted and probably have the least leverage for negotiation. Though I do think as we get clarity over the next couple of months, July 4th being that 90 day barrier of trade negotiations, and then you get some of the back end tax cuts and deregulation, you could potentially see these things revert back. That’s more or less how I’m reading it.
John Archbold
Yeah, for sure. And I think going into this next chart of course, where we talk about US dominance and so forth and is that changing? A big part of that though of course are flows. How much of this is actual information versus how much of it are flows coming into the year, and I’m curious as to your thoughts on this, for both of you, is just everyone was trying to buy Microsoft and Apple back in December. It’s a little tougher to put all those flows into German utilities that hadn’t seen flows in quite a long time. That can have an outsized impact on price, but what are your thoughts there?
David Wagner
John Luke, I want to hear your opinion here too. We already touched base on this international running on the upside and on the downside. We all know that it’s come from valuation expansion and currency translation. About 60% of the outperformance relative to the US has come from currency translation with the residual 40% being valuation. The question I would ask you guys, do you believe it? Is this a head fake and are you buying this structural nature of the story that the script has changed? Because I know that a lot of our clients, and not just our clients but if you look around the entire United States, everyone tends to be underweight international stocks. So has the tide changed? What do you think, John Luke?
John Luke Tyner
Well, when it was 70% of sort of the ACWI global index was allocated to US stocks coming into the year roughly, and maybe it’s bumped down to 65%. So for every dollar that gets invested, 70 cents was going into the US. Now it’s 65, so it’s still meaningful. So I think you could see some shifting around from foreign investors that maybe impact this a bit, but if the mag seven and the top names continue to perform, I would imagine they’ll be as quick to chase back in as they were to get out.
And I saw this and I thought it was pretty interesting. So looking at US, our quality stocks, so just think about the mag seven types of names, and this might be slightly off, but Amazon’s trading at 29 times, 25 earnings. Nvidia is at 24 times, Oracle’s at 30 times. I think Google is in the teens, Meta was in the teens.
David Wagner
16.
John Luke Tyner
What do you think Germany’s SAP is trading at on a multiple of ’25 earnings?
David Wagner
Of 2025? I’d say 35 times.
John Luke Tyner
41 times. So do you want to own-
David Wagner
Do you want to own Oracle or one of those? Do you want Nvidia at 24 or that at 41?
John Luke Tyner
Yeah, pretty easy to look at that. And to echo Arch’s comments too, the sector buildup of those indices is quite different than the US from both a sector perspective but also from a growth and a quality perspective. So as long as the US continues to demonstrate the growth, I think it’s going to be hard to see that swap, and maybe you see some general rebalancing from repatriated flows, but I don’t think it’s going to be enough to really flip things that drastically.
David Wagner
I’m with you. The one thing I can’t stand… Once sec, Arch. I’ll let you go after this. The one thing I can’t stand is that everyone says that market concentration is a bad thing. All right, guys. Well, give me those returns back that have been driven by the Mag seven for the past few years. If you’re so anti mag seven and think concentration is an issue, it’s not. We’re one of the least concentrated nations in the world, and everyone just assumes, “Market concentration. They got to pull back. You got to go average market.” I just disagree with that. It can go both ways, but I would say 98% of people say that market concentration is a bad thing. I don’t. Sorry. Go ahead, Arch.
John Archbold
No, never apologize. No, I think on that front, David, one of the fallacies I think, there’s the gambler’s fallacy. We’re due, international is due, value is due, and the reality is nobody’s due anything, right? Markets are not a mean reverting system. It’s just not how they behave, and so as you folks point out, there’s a CapEx story, there’s an earnings story, there are fundamentals. The point, Dave, that you’ve made at the beginning of the year about the US large caps being the only area of the global stock market where you actually have operating leverage.
And then beyond that, never forget the dominance of the dollar. Folks forget how correlated international returns are to the performance of the dollar, and yes, the dollar has, air quotes, “taken a beating,” but if you look at where the DXY is today versus where it was even in 2018, we’re well above where we were in 18. So we have not and until you see that dollar really retreat, and this is just my own view, but I think, again, that the structural dominance of the dollar is tough to overcome for international stocks. It really is.
John Luke Tyner
Agree. I thought we’d end on a fun one, and I know Dave and I have a lot of comments on this. We’ve shared a number of graphics and if you’ve looked at any presentation that we put out, towards the end, there’s quite a few charts just talking about time in the market, not getting scared on the worst days because they’re typically followed by the best days. And this is just a scorecard that Bloomberg put out about buying the dip and the following returns, basically following a 5% return over two days, and what you’ve seen is once again, the dip buyer program had paid off.
And so whether it was sitting tight in your allocations and not panicking when things got a little bit rocky or whether it was putting more money to work, and we did see a number of that across our clients where they actually were increasing the risk tolerance for clients as markets sold off, or if you’re systematically rebalancing in your funds from profits from hedges and reinvesting back into stocks, you’re getting a lot of this effect. And this I think just shows a lot of practicing what you preach.
David Wagner
And Johnny, you sent me an awesome quote today and it’s just perfect for this, and probably, we should have just read this. Well, actually, I am going to it. Given all these questions, all the known unknowns and all the ones anyone has not asked so far, unknown unknowns, do you really think that you can predict the future course of the global economy, the stock market, interest rates, whatever it is? I can’t imagine anyone answering those questions in the affirmative.
Even in the best of times, it’s hard to predict the market or economy a year in advance. I’d say it’s impossible because of those unknown unknowns. Black swan events do exist, and these are not by any stretch of the imagination the best of times, there’s uncertainty about the future economic policies off the charts ,and the geopolitical situation is far from comforting. But there’s so many unknown unknowns out there, you have to control what you have the ability to control and prepare for what you can’t control, and I just think it’s a great way of saying it. And you said a quote down in Austin this week, John Luke. It was something about duration of a bull market, when there’s a bull market and bear market. Do you know what quote I’m talking about?
John Luke Tyner
Well, basically, when it’s a bull market, the time horizon is infinity, and when it’s a bear market, the time horizon is today. And I thought that-
David Wagner
I love it.
John Luke Tyner
Putting those together, you had some great quotes in a recent talk I heard you give, just talking about the magnitude and the number of tail environments and how that it’s likely we could see a large increase in that moving forward, whether it’s the left tail, which arguably we saw a 20% drawdown. It wasn’t quite a left tail event, but it was close. But then you snap back and you see a right tail, and then of course the last couple of years have been a right tail. And so I think if anything is known or likely, it’s that volatility is here to stay.
And you build these financial plans, you build investment allocations to stay the course and be resilient, and it’s not necessarily how your portfolio does in the best of markets because it’s going to be fine. It’s how it does in the worst of markets and does it hold up? And we think a lot of the things that we’re doing have helped us navigate a choppy market. Even though a number of the tilts that we make in portfolios have been somewhat negative this year, whether it’s underweight international, underweight duration, overweight stocks, underweight small cap, none of those have really worked. But if you look at the performance of the portfolios, even in an environment where we’re 0 for four, it’s highly digestible. And I think that’s the magnitude of the benefits of having different types of strategies that aren’t as correlated to markets, but also the diversification has paid off a bit this year.
So just teeing it up for moving forward, I think buying the dip probably won’t always work, but I think if you have the ability to recycle profits within your portfolios and within the funds inside of the portfolios to sell expensive hedges after you get some turmoil and reroute that back into cheaper stocks, that you’re just improving your chances of long-term compounding at deficient rates to meet your goals.
David Wagner
From a risk and investment management perspective, we’re always going to harp on about the same thing. Build convexity into your portfolio, improve the geometric compounding path of investments through time. It’s not about predicting the future. It’s about building resiliency in your portfolio to divergences from expected outcomes. So it’s exactly what you said there, John Luke. It is about how your portfolio performs when you’re wrong, not when you’re right. That will make all the difference.
John Archbold
Well said.
David Wagner
Well, Arch, you guys have your first three pointers.
John Archbold
Yeah, I did my best Stephen impression that I could.
John Luke Tyner
Great work. Thanks, guys, for this, and anyone’s got any questions, you know how to get us. Here to help, but definitely both of us, I think we’re pretty happy to see the market come off those lows.
John Archbold
Here’s to a right tail man, right? That’s what we’re hoping for. Let’s get a right tail man.
John Luke Tyner
There are so many that go away. Thanks, everyone.
David Wagner
Thanks, guys.
John Archbold
Thanks, guys.
Disclosures
Past performance is not indicative of future results. This material is not financial advice or an offer to sell any product. The information contained herein should not be considered a recommendation to purchase or sell any particular security.
The opinions expressed are those of the Aptus Capital Advisors Investment Team. The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. Forward-looking statements cannot be guaranteed.
Aptus Capital Advisors, LLC is a Registered Investment Advisor (RIA) registered with the Securities and Exchange Commission and is headquartered in Fairhope, Alabama. Registration does not imply a certain level of skill or training. For more information about our firm, or to receive a copy of our disclosure Form ADV and Privacy Policy call (251) 517-7198. ACA-2505-5.
