By now, you’ve in all probability heard the Michael Cembalest of J.P Morgan quote in every single place—particularly since Josh Brown dropped it on CNBC barely an hour after I’d learn it myself. All of us get these reviews on the similar time—however he’s well-known and on TV, and I’m only a schlub. Nonetheless, the quote’s too good to not repeat, even in case you’ve seen it a dozen instances on social media:
“Right here’s the fascinating factor in regards to the inventory market: it can’t be indicted, arrested or deported; it can’t be intimidated, threatened or bullied; it has no gender, ethnicity or faith; it can’t be fired, furloughed or defunded; it can’t be primaried earlier than the subsequent midterm elections; and it can’t be seized, nationalized or invaded. It’s the final word voting machine, reflecting prospects for earnings progress, stability, liquidity, inflation, taxation and predictable rule of regulation.”
Everybody all the time desires a solution to, “What’s occurring out there?” and the reply normally lies in earnings.
Inventory costs are a mirrored image of the anticipated future earnings after which a hypothesis premium, each of that are mirrored in a P/E ratio. As a primary orientation, a P/E ratio of 20x means that you’re paying $20 for each $1 of earnings a inventory generates. When the denominator, the earnings, turn into suspect, unstable, or in jeopardy, inventory costs inevitably observe.
Proper now, the market is signaling loud and clear: earnings matter most, and volatility is right here.
In his current observe, Cembalest emphasised investor discomfort with the Trump administration’s aggressive tariff insurance policies, which create vital earnings uncertainty.
David Kostin at Goldman Sachs echoes this, noting:
“The S&P 500 entered -10% correction territory this week as traders digested the implications of coverage uncertainty on the financial outlook. We trimmed our S&P 500 earnings estimates and decreased our year-end value goal to 6200, representing 10% upside from present ranges… the current efficiency of shares delicate to capital markets exercise means that post-election optimism round a broad-based surge in exercise has diminished. The typical inventory amongst different asset managers, advisors, and funding banks shares rallied by 13% (vs. +3% for the equal-weight S&P 500) between Election Day and the top of January, however since then has declined by 23% (vs. -7% for the equal-weight S&P 500).”
Josh Brown bolstered these views on his CNBC spot, noting markets are quickly repricing danger:
“Earnings come first, sentiment second. So long as commerce tensions and coverage uncertainties persist, count on continued market swings.”
The underlines are mine and I believe so long as earnings readability stays elusive, they’ll proceed to be proper—and so will we.
How Monument Wealth Administration Manages Threat
At Monument, we’ve constructed a strong, data-driven course of particularly to navigate market volatility successfully.
Our funding fashions are trend-based—we capitalize on what’s working within the markets and keep away from what’s not. As an alternative of creating predictions, we observe a “weight-of-the-evidence strategy”, integrating relative energy rankings, valuation metrics, and broader market indicators to make goal choices. This ensures that we keep invested in strong-performing securities and keep away from these with weakening momentum.
Disciplined, Information-Pushed Determination Making
Right here’s a fast breakdown:
- Relative Energy as a Aggressive Benefit: Our fashions repeatedly consider securities based mostly on their efficiency relative to their friends. Because of this even in a rising market, we prioritize investments demonstrating the strongest momentum, guaranteeing that we systematically lower underperformers and allocate to leaders.
- Promote First, Reallocate Second: Not like many funding methods that target selecting winners, our fashions establish what to promote first. Solely after eradicating an underperforming safety can we search for a substitute, guaranteeing we preserve a portfolio of high-performing property somewhat than merely including new ones.
- Valuation Self-discipline: We don’t blindly chase high-growth shares or speculative property. As an alternative, our fashions apply an affordability check to keep away from overpaying for overvalued shares. This ensures that we allocate to securities with robust fundamentals, not simply robust momentum.
Tactical Threat Mitigation Throughout Market Downturns
When the market indicators sustained declines, our strategy adapts to the development as an alternative of preventing it.
- Holding Money as a Tactical Protect: Money is the perfect hedge and when the information suggests we ought to be on protection, any proceeds from securities the fashions promote are briefly held in a liquid, low-volatility cash-equivalent ETF somewhat than being instantly reinvested. This prevents reinvesting in declining property and preserves capital till the market stabilizes.
- Systematic Reinvestment When Tendencies Enhance: As soon as the information suggests it’s time to maneuver again to offense, we systematically redeploy money from the cash-equivalent ETF again into the shares that every the mannequin identifies as trending upward once more. It’s not good, it should by no means operate on the high or backside of a market, but it surely helps traders take part in recoveries with out prematurely committing capital throughout market stress.
- Avoiding Emotional Market Timing: Many traders react emotionally to downturns, both panic-selling or making speculative reentries. Our rules-based strategy removes emotion from the equation, guaranteeing that funding choices are made based mostly on information, not sentiment.
The Consequence: A Threat-Acutely aware, Adaptive Funding Course of
Our systematic strategy to danger administration helps make sure that we keep away from holding “melting ice cubes”, which means that shares with deteriorating momentum are promptly eliminated.
We don’t battle downtrends—capital is preserved in cash-equivalents throughout extended declines.
We observe the information to reenter markets strategically, guaranteeing our portfolios align with prevailing market energy.
We prioritize creating wealth over being proper—eradicating human bias from decision-making.
By following this disciplined, rules-based course of, Monument Wealth Administration goals to guard shopper capital throughout downturns whereas positioning portfolios for what we imagine is best, long-term progress.
Let’s hold the dialog going—readability issues, particularly now.
And as all the time…
Hold trying ahead.
Dave
