This is the year diversification went to work in client portfolios: BNY Wealth's Alicia Levine

By CNBC Television

FinanceBusinessEconomics
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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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