Tariffs have been a good reason for investors to sell, says Michael Landsberg

Key Concepts:

• Tariffs and their impact on investment decisions
• GDP slowing and its effect on earnings
• Market correction vs. recession
• Sector rotation: Tech/Discretionary vs. Healthcare/Staples/Utilities/Insurance
• International diversification: Europe as an investment alternative
• Inflation measurement: PCE vs. CPI
• Federal Reserve's handling of inflation

1. Investment Strategy in the Face of Uncertainty

• Michael Landsberg advises caution about going "all in" on any investment due to market uncertainty, particularly concerning tariffs.
• He suggests that CEOs and investors should reconsider deploying capital in the US for manufacturing due to tariff implications.
• Landsberg recommends focusing on areas less affected by tariffs, specifically necessities.

2. Tariffs and Economic Slowdown

• Landsberg believes the recent market sell-off (Nasdaq down 10.4%, S&P down 4.5%) doesn't fully reflect the potential pain from tariffs.
• He argues that GDP is slowing, and earnings are expected to decelerate, contributing to market concerns.
• He clarifies that earnings will decelerate from their previous growth rate, but not necessarily be lower overall.

3. Market Correction vs. Recession

• Landsberg doesn't anticipate a recession but expects slower GDP growth.
• He cautions against "picking a falling knife" in the Nasdaq, which has had a significant run-up in the past two years.
• He notes that the S&P 500 is currently around 5600, and a test of 5000 or even 4500 is plausible, representing a 10% correction.
• He suggests that without tariffs, a market correction would be less likely.

4. Sector Rotation and Safe Havens

• The market sell-off is driven by uncertainty, causing investors to take profits, especially from high-performing tech and discretionary stocks.
• Money is flowing into sectors that have underperformed, such as healthcare and staples, indicating a rebalancing trade.
• Landsberg points out that the S&P 500 is still down 8.7% from its all-time high, and the Nasdaq is down more than 14%.

5. International Diversification

• Landsberg suggests looking at Europe as an investment alternative, as it was in a "lousy place" for a couple of years but now presents opportunities.
• He believes allocating some investments outside the US is prudent, given the current market conditions.

6. Defensive Sectors and Consumer Behavior

• He favors sectors with essential products and services, such as utilities, insurance, and staples.
• He anticipates that consumers and businesses will postpone discretionary purchases due to economic uncertainty.

7. Federal Reserve and Inflation

• Landsberg expresses concern about the Federal Reserve's handling of inflation, citing the "transitory" narrative and instances where inflation exceeded expectations.
• He criticizes the use of PCE (Personal Consumption Expenditures) as an inflation metric, preferring CPI (Consumer Price Index) because it more accurately reflects the investor's experience.
• He notes that in September, PCE was flat, while CPI rose by 2-2.5%, and the CRB (Commodity Research Bureau) index increased by 20%.

8. Conclusion

Michael Landsberg advises a cautious investment approach due to tariff uncertainties and a slowing economy. He recommends diversifying internationally, focusing on defensive sectors like utilities, insurance, and staples, and being wary of the Federal Reserve's inflation management. He suggests that a market correction is possible, but a recession is less likely. The key takeaway is to prioritize investments in essential goods and services and avoid discretionary spending until there is more clarity on the tariff situation.