Transcript:
Caroline Woods
Joining me now to kick off the week is Ron Insana, CEO of Insana Information Partners. Ron, great to have you back at the desk.
Ron Insana
Thanks for having me back and see you.
Caroline Woods
So I want to get a check in on your market sentiment, because you were last on in December and you were a bear then, and that was before we were in a war with Iran before oil hit $100 a barrel or more. And before some of this pressure that we’ve seen on tech. How are you feeling about the market now?
Ron Insana
About as bad as they did then. I know I’m still I think there’s a, you know, 5050 chance that we go from correction to bear market over the course of the next couple of months, which, you know, strictly defined would be a 20% downdraft for the major averages, maybe a little bit more if particularly if the war is not settled in relatively short order.
Ron Insana
I think if you start to see crude oil, you know, jump to 110, 120 here in the States or one 3140 in London. There’s also this lagged effect that the crude oil that we have that’s been distributed around the world from several months ago is just reaching the shores of these destination countries, whether it’s in Asia or in Europe.
Ron Insana
So this disruption that’s taking place in the Gulf now won’t really hit other countries for several weeks to come. So we may see supply shortages of fertilizer, of energy products, of agricultural products around the world that could create a weaker global economy and by extension, hurt the United States and keep inflation above target for some time to come.
Caroline Woods
Okay, so we have seen stocks rallying a bit this morning on hopes that the war could be over soon. We have seen the Nasdaq dip into negative territory.
Ron Insana
We also hear that every Monday morning.
Caroline Woods
If the war ends tomorrow, where does the market go?
Ron Insana
Well you’d have to expect it to be a rocket shot straight higher just on a relief rally. Whether or not it eliminates all the problems that we have as a consequence of not just the war, but the lingering effects of tariffs. As you said earlier, the gutting of some of the technology stocks that are down. And then the alternative asset managers are down 20, 30, 40% as well.
Ron Insana
And so there are still these lingering concerns about credit quality in the private credit space. So I don’t think we we have resolved all the issues that this market faces. The war would be one the biggest one, but not all of them.
Caroline Woods
So you’re 5050 correction to bear market.
Ron Insana
Yeah.
Caroline Woods
What does that change to if the war does end quickly?
Ron Insana
Well, I think you get a big relief rally and then you go back and contend with a couple of other issues. Can the Federal Reserve cut interest rates even if the war comes to a swift conclusion? Will tech rebound and will alternative asset managers who have been you know, preventing investors from withdrawing their funds from certain private credit vehicles?
Ron Insana
Well, is that a canary in the coal mine that there’s problems in the credit markets that haven’t yet made themselves, you know, fully known in the financial system?
Caroline Woods
And we actually saw the market starting to price in the potential for a rate hike later this year versus another cut because of inflationary pressures. How damaging would that be for stocks?
Ron Insana
A rate hike would be. Listen, I mean all bear markets start with a rate hike, right? I mean, so we’ve had just a garden variety correction despite how big the headlines have been. You know the S&P before this morning’s rally was down 9.7% from its high. The Dow, the Nasdaq and the Russell were all down. More than 10% were negative for the year.
Ron Insana
And that’s without the Federal Reserve getting less friendly. So by late friend Marty Zweig, you know, very famous investor said don’t fight the fed. Don’t fight the tape. Tape doesn’t look that great. The Fed’s being called into question. If you were to get those two things combined, where the tape gets weaker and the Fed’s leaning towards tighter policy, you could pretty much guarantee there would be more downside in the stock market.
Caroline Woods
We’re also hearing more about stagflation that has entered the conversation. Is that base case to our base case now or do you think that’s still just a risk case? No.
Ron Insana
That’s been my base case since last year. Since the end of last year, I think. I don’t know if we talked about it in December, but it’s mini stagflation. I mean, I think Jay Powell was correct in his last public comments to suggest that anything like the 1970s and early 1980s is off the table. I mean, you would need a 15 year period to build that case where inflation is 13%, unemployment’s 11%, and interest rates go to 20%.
Ron Insana
That’s not where we are. But you could see the labor market stagnating or weakening. You could see GDP growth slowing. And you could see inflation holding above three three. And a half percent for some period. And that’s well it’s not the worst of all worlds. You know, 1980 was as was the financial crisis 2008. It’s it’s aggravating enough that consumers spend less that the policymakers are frozen because they don’t know which item to focus on, a weaker economy or higher inflation.
Ron Insana
And it kind of just locks the economy into this, you know, kind of no go zone, if you will, or low, high or low fire or inflation that’s uncomfortably high for most people, particularly middle and lower income individuals. And you get a stagnant economy.
Caroline Woods
You’ve also been cautious on the AI build out in the AI trade. Do you look at what’s happening now, the gutting of tech, as you said, as just an overextended sector? That’s right sizing? Or do you look at this as the beginning of a bubble unwinding?
Ron Insana
Hard to tell. I mean, you know, I think, you know, we’ve had this Apocalypse Now where software stocks, both in public and private markets seem to be marked down rather substantially. I think what we don’t know yet is whether or not any of these prominent AI companies can earn enough over time to fund the trillions of dollars they’re spending on infrastructure.
Ron Insana
And if I becomes a commodity and they don’t have pricing power and we can all buy, you know, ChatGPT or clawed for $20 a month, is that market going to be big enough to finance what’s expected to be at least a $3 trillion spend over a five year period? And I think that’s where it gets a little sticky.
Ron Insana
And I think it’s still too early to tell.
Caroline Woods
Is there anything in tech that you would look at as a safe bet right now, though?
Ron Insana
I don’t right now. I mean, certainly the valuations have come down a lot in the tech sector. In fact, the entire outperformance of the of the Mag seven relative to the S&P is gone. And you know, we’ve seen Microsoft come down 26% from its highs. We’ve seen a lot of stocks really get taken out to the woodshed including Nvidia which was the premiere company in the space.
Ron Insana
We might be getting closer to a point where people can nibble safely. I wouldn’t be throwing a ton of money yet, at any area of the equity markets right now until we get some clarity around all the issues we’ve discussed so far.
Caroline Woods
So if you’re someone sitting here right now with money in the market, what do you do? Do you hold? Do you trim.
Ron Insana
What we’ve always I mean we I it was editorial. We always suggest that, you know, if you’re overexposed to a specific area, you reduce it back to the weighting that it’s supposed to be in your portfolio. And you take all those prudent portfolio management steps to make sure that you’re not, you know, too far out on a limb with respect to either individual stocks or specific sectors.
Ron Insana
So that kind of portfolio management is always wise. If you’ve got ten, 15, 20 years to retirement, you continue to dollar cost average. You put the money to work. You know, my preference like Warren Buffett’s is for just buying index funds and not getting to shoot unless you really know, unless you really spending time studying individual stocks and you have a complete understanding of what their business model is.
Ron Insana
For most folks who don’t have the time to pay attention, that way you can go with the S&P, the QS, the Russell, or even the international index and create a basket of those four and just keep putting the money away. Sock it away until you need it. If you need it in the short run, I’d be a little more careful and maybe buy some T-bills and, you know, hedge just a touch.
Caroline Woods
Last time we were on with us, you actually liked international over U.S. opportunities. Does everything happening in the world, and also the recessionary risk that Europe Asia is now facing, change that view a little bit.
Ron Insana
I mean, I think the the rest of the world is still modestly outperforming the U.S., but that differential is how much by how much they’re down versus by how much they’re up. So last year, you know, we had European and Asian markets outperformed by by leaps and bounds. You know 2 to 3 x the United States. Now we have the US down on the year.
Ron Insana
And Europe and Asia are in some instances still in positive territory but only by a couple percentage points. So there’s still a spread of positive spread between the rest of the world and the United States. It’s just not as pronounced as it was last year.
Caroline Woods
So as I think about your sentiment at the end of last year, which felt very bearish to now 50% chance of a bear market, I mean, that’s kind of a safe you know it.
Ron Insana
And I it more negative to to I’m.
Caroline Woods
Just curious like are you a little bit do you think that what we’ve seen in terms of the sell off that we’re at valuations now and that maybe are more justified and there’s not necessarily reason to move lower.
Ron Insana
Well, I mean, I think I think there’s still the risk of moving lower. But the valuation question, I guess the PE on the S&P 500 is now down below 20, which is much, much closer to historic average. And so it’s a safer environment relative to where we’ve been. But we have seen an uptick in interest rates as well.
Ron Insana
Sure, even without the fed getting involved. So as rates go up they’re down a little bit this morning. But if they do continue higher that changes. You know the relative value between bonds and stocks.
Caroline Woods
So what is it that you think investors might be underestimating right now.
Ron Insana
Well I think it’s a private credit risk. I, I still think is is an issue whether it’s systemic like 2008. I don’t think it’s that magnitude. To me, it still seems like it may create a shock. That’s more like the failure of long term capital or the Asian currency crisis, where we get a big market disruption that shakes the tree, maybe prompts the federal Reserve to cut interest rates, and then sets the stage for another rally down the road.
Ron Insana
I’m keeping a close eye on that as possible. You know, it’s it’s hard. It’s impossible to escape the war right now as being the principal risk both domestically and globally. I don’t know if that means my time is up, but but I think that, you know, we’re getting closer to where valuations are reasonable, but we still have these, you know, these major concerns principally first around the war.
Ron Insana
Then secondly, I think around, deterioration in private credit. That’s very hard to assess because it’s such an opaque market and we don’t know how these loans are being valued, and we can’t see through those markets to get good information about where they stand.
Caroline Woods
We had Gareth Solloway on not too long ago. He’s a trader. He looks at the charts, technical analyst, if you will, and he has a 5600 price target for the S&P 500 by year end. Yeah. Do you. Is that about right? Is that aggressive. Is it conservative?
Ron Insana
I Trump middle of the road I think you know at this juncture you know if you’re hovering around 6000 and you know another 400 points to the downside would you know, wouldn’t be shocking, that would again put us in bear market territory, you know, effectively, you know, we broke it in technical terms. We broke the 200 day moving average.
Ron Insana
There’s some talk about a Death Cross in some of the major averages, which historically has led to further downside activity. It’s not always a reliable indicator, but, you know, you’ve seen also what I would call a gutting of the market, right? You see the technology stocks get killed. You see, in the mag seven have lost their outperformance.
Ron Insana
We’ve seen alternative asset managers and financial stocks also get hit. And usually when when you see that type of internal deterioration, the averages are more likely to catch down to those sectors than the sectors are to catch up to the averages. So you’ve had big, big declines in a lot of different assets and a lot of different asset classes.
Ron Insana
Bitcoin is down you know you see.
Caroline Woods
But is there any reason to be bullish right now. What would flip your outlook.
Ron Insana
The war coming to a very very swift conclusion and oil flowing again fertilizer flowing again. Some measure of, I guess, stability in the Middle East that would not guarantee because that’s impossible, but would make more likely a much calmer environment that would allow for a big relief rally. But there look, we haven’t had a bear market in quite some time, you know, and we’ve also had a four year bull run.
Ron Insana
So it’s not unusual that we’re seeing downside. In fact, the average annual decline peak to trough is 14%. So we haven’t even hit that. Just, you know, as a matter of course, it’s not the end of the world. I don’t think that’s what’s happening. But you know, I think people have to recognize that this type of volatility is normal.
Ron Insana
You know, over the course of my career, you I’ve gotten these questions, you know, you think there’ll be more volatility in the stock market. And the answer is always yes. I mean you know we’ve always had a I mean I started in 1984 and there was tons of volatility. Then there’s tons of volatility now. And it’s just a feature of the market.
Ron Insana
It’s not a bug okay.
Caroline Woods
Well we’re going to transition to our rapid fire game this or that. Pin you down for some quick answers. Quick questions here. You ready okay. More likely correction or bear market.
Ron Insana
Bear market.
Caroline Woods
Buy the dip or wait for lower wait.
Ron Insana
For lower.
Caroline Woods
Rotation or real de-risking.
Ron Insana
Real de-risking.
Caroline Woods
Small caps ketchup trade or value trap.
Ron Insana
Value trap.
Caroline Woods
Fed’s next move. Hike or cut. Neither stay on hold. Inflation. Temporary spike or persistent problem. Persistent problem. Which are we closer to? Stagflation or recession?
Ron Insana
By definition they’re partly the same thing. So. But I’m still in the stagflation camp.
Caroline Woods
Oil’s stabilizing or heading higher.
Ron Insana
Heading higher.
Caroline Woods
Geopolitics. Market noise or real economic risk?
Ron Insana
Real economic risk.
Caroline Woods
Around more priced in or just getting started?
Ron Insana
That’s a that’s that’s a coin toss. I’m going to say just getting started because I think that there are some risks that have not yet been realized, particularly if we put troops on the ground.
Caroline Woods
Dollar, safe haven or problem asset.
Ron Insana
Neither.
Caroline Woods
Better place to hide. Gold or treasuries.
Ron Insana
Treasuries. Short term treasuries.
Caroline Woods
I build out sustainable are overextended.
Ron Insana
Slightly overextended.
Caroline Woods
I opportunity or bubble.
Ron Insana
Both.
Caroline Woods
I winner you reinvest I winner you invest in regardless.
Ron Insana
Anthropic.
Caroline Woods
Stay invested or raise cash.
Ron Insana
Raise low.
Caroline Woods
Cash US markets are international.
Ron Insana
Still international.
Caroline Woods
Credit markets stable are starting to crack.
Ron Insana
Starting to crack.
Caroline Woods
Private credit opportunity or risk?
Ron Insana
Risk.
Caroline Woods
One word to describe the market right now.
Ron Insana
Unstable.
Caroline Woods
One word to describe how you’re feeling about the market this year.
Ron Insana
Unstable.
Caroline Woods
We’ll leave it there Ron. And it. He is, CEO of Insana Information Partners. Always a pleasure. Thanks so much.
Ron Insana
See you.