Great opportunity to reallocate to safe side of markets, says Treasury Partners' Richard Saperstein

Key Concepts

• Market momentum
• Favorable economic backdrop (full employment, Fed on hold, resolved tax policy, deregulation, economic growth)
• Tariffs as headwinds turning into tailwinds
• Sector allocation (large-cap tech, utilities, banks, finance)
• Growth vs. value investing
• Long-term investment horizon
• Transformative technologies
• Valuation considerations
• Municipal bonds (Munis) for wealthy clients
• Asset reallocation

Market Momentum and Economic Backdrop

Rich Saperstein believes that the market still has momentum due to a favorable economic backdrop. This includes:

• Full employment: A strong labor market supports consumer spending and economic activity.
• Fed on hold: The Federal Reserve pausing interest rate hikes provides stability and reduces borrowing costs.
• Resolved tax policy: Clarity on tax regulations reduces uncertainty for businesses and investors.
• Deregulation: Reduced regulatory burdens can stimulate economic growth.
• Overall economic growth: The economy is still expanding, creating opportunities for businesses.

Tariffs: From Headwinds to Tailwinds

Saperstein argues that tariffs, initially a "self-inflicted wound" and a headwind, are now turning into tailwinds. While tariffs are essentially a tax, the economy has proven resilient to shocks. He suggests focusing on sectors less affected by tariffs, such as large-cap tech, utilities, banks, and finance. He advises against investing in consumer products or cars that are heavily tariffed.

Sector Allocation and Investment Strategy

Saperstein advocates sticking with sectors that have been performing well, specifically:

• Large-cap tech: Companies like Microsoft, Meta, Amazon, Apple, and Google are driving transformative technologies and experiencing significant growth.
• Utilities: Provide essential services and are generally less sensitive to economic fluctuations.
• Banks and finance: Benefit from economic growth and rising interest rates.

He does not believe in broadening the trade to underperforming sectors. His investment philosophy is based on the principle of not selling winners or trying to buy bottoms. He prefers to maintain concentrations in sectors with tremendous opportunity.

Earnings and Long-Term Perspective

While acknowledging that some stock reactions to earnings may not correlate perfectly (referencing Google's stock reaction despite strong cloud revenue growth), Saperstein emphasizes a long-term investment horizon. He has owned tech stocks for over a decade and believes that wealth is built by owning great companies and participating in transformative technologies. He highlights Google's cloud revenue growth of 32% and margin improvement from 13% to 20% as examples of compelling growth opportunities.

Valuation Considerations

Saperstein acknowledges that the market is expensive and tech stocks are richly valued. However, he still prefers to own them because they are growing. He presents a choice between buying cheap, underperforming stocks or staying with winners. He opts for the latter, prioritizing growth over value.

Municipal Bonds (Munis)

Saperstein still likes municipal bonds (Munis) for wealthy clients seeking a safe portion of their portfolio. With Munis yielding 4.5%, they can contribute significantly to a target rate of return of 7%. He notes that wealthy clients often avoid corporates or treasuries due to full taxation, making Munis an attractive option.

Asset Reallocation

Saperstein mentions that his firm practices asset reallocation. When there are massive gains in the stock market, they reallocate to maintain a balanced portfolio.

Conclusion

Rich Saperstein maintains a bullish outlook on the market, driven by a favorable economic backdrop and the potential of transformative technologies. He advocates for a focused investment strategy centered on large-cap tech, utilities, banks, and finance, while acknowledging valuation concerns and utilizing municipal bonds for wealth preservation. His approach emphasizes long-term growth and sticking with winning sectors.