This is the year diversification went to work in client portfolios: BNY Wealth's Alicia Levine
By CNBC Television
Key Concepts:
- S&P 500 target reduction
- Recession odds (25%)
- Soft data vs. hard data
- Consumer confidence
- Tariffs (potential impact on GDP)
- April 2nd as an "event day"
- Clarity vs. uncertainty in policy
- Diversification in portfolios
- 12-18 month market outlook
1. Market Volatility and S&P 500 Target Reduction
- The market is experiencing volatility, with the Dow, Nasdaq, and S&P futures all down.
- BNY Wealth has reduced its S&P 500 target for the year from 6600 to a range of 6000-6400.
- This adjustment reflects concerns about potential economic slowdown and policy uncertainty.
2. Increased Odds of Recession
- The firm has increased the odds of a recession to 25%, although it's not the base case.
- The decision is based on deteriorating "soft data" (e.g., consumer confidence) while "hard data" (e.g., consumption) remains relatively strong.
- The concern is that declining consumer confidence could eventually lead to reduced consumption and investment.
3. The Impact of Policy Uncertainty and Tariffs
- Uncertainty about future policy, particularly regarding tariffs, is a major concern.
- Businesses may become "frozen," delaying investment and hiring decisions due to a lack of clarity.
- The potential impact of tariffs on GDP is discussed:
- Tariffs in the range of $600-$700 billion (around 2% of GDP) would be "very difficult for markets to digest."
- Tariffs in the range of $150-$200 billion would be more manageable for the U.S. economy.
4. April 2nd as a Potential "Clearing Event"
- April 2nd is highlighted as a key date when more clarity on trade policy is expected.
- The market is already "negative" and "de-risked," with portfolios having sold off.
- The hope is that April 2nd will provide enough clarity for investors to re-enter the market.
5. Clarity vs. Uncertainty: Which is Worse?
- The discussion explores whether it's better to have certainty about large tariffs or to continue with mixed messages and uncertainty.
- The conclusion is that uncertainty is worse for the economy because it makes it difficult for businesses to plan and invest.
- "I think the uncertainty is worse because then the uncertainty becomes endogenous to the models, right? You can't predict. You can't."
6. Investment Strategy and Diversification
- The firm advises clients to maintain diversified portfolios, emphasizing that diversification has been beneficial in the current market environment.
- The focus is on a 12-18 month outlook, considering the tax implications of making changes to portfolios.
- The expectation is that markets will be higher in 12-18 months, but the first half of the year is expected to be slower than the second half.
7. Soft Data vs. Hard Data
- Soft Data: Subjective measures of economic activity based on surveys and sentiment, such as consumer confidence or business expectations.
- Hard Data: Objective, measurable economic indicators like GDP growth, employment figures, and retail sales.
8. Synthesis/Conclusion
The market is facing significant uncertainty due to potential tariffs and unclear policy. BNY Wealth has adjusted its S&P 500 target and increased the odds of a recession, but remains optimistic about the long-term outlook. The key is for policymakers to provide clarity so that businesses can make informed decisions. Diversification remains a crucial strategy for navigating the current market volatility. April 2nd is a critical date to watch for potential resolution of policy uncertainty.
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