Noise vs. Signal: Sunpointe’s Q2 2026 Market Outlook Webinar

[00:00.0]
All right, it looks like we’ve got some people in here to start, so let’s jump right in. So welcome, everybody. This is this quarter’s Market Environment Report webinar. I’m Matt Zigler. I’m a managing director here at Sunpoint. And today, Lee Boudouris, Director of Research. Say hello, Lee. Hello.

[00:16.4]
How’s everybody doing? And of course, looking dapper as ever. Might I just add Sunpoint’s president, Jack Dwyer. How you doing, Jack? Outstanding. Okay, so, slightly new format in this one in the screens here, but please feel free enter questions in the chat.

[00:32.4]
We’ll answer what we can in time remaining while we’re here. And certainly if you’re watching this on recording or if you come up with questions a day later, as I am often want to do, send us an email. Just go to sunpointinvestments.com any questions, we’ll get back to you.

[00:48.6]
Note also we’re recording this. It’s April 29th. The fed reserves, April meeting ending in two hours. We don’t have a crystal ball and we don’t know what’s going to happen yet. Lee might be hiding one somewhere in that office. Consensus estimates are no change to the Fed’s fund rate, so we’re just going to operate on that assumption for some of the slides you’re going to see with interest rates, et cetera.

[01:10.7]
But let’s dive right into the deep end here, Jack. Markets offered, a little bit to talk about in Q1. I heard some stuff happen in the world. Where do you want to start? Yes, sir. So good to be with everybody. And just like on the front page, we like to take the huge jumble of economic information and try and synthesize it down to some useful information that you can use to make, be confident about some decision making.

[01:38.5]
Unfortunately, in March, markets didn’t provide us much comfort, the sell off, especially in US and large cap equities. The Nasdaq was down 7ish percent, but a lot of that’s bounced back so far in April.

[01:56.2]
So good news is US large cap was down quite a bit in the first quarter, but it’s made a good comeback with the S and P up almost, or a little over 9%. But international equities were okay and were a good diversifier the first quarter. Diversification really paid off for international and what we call hybrid income, where REITs and infrastructure both held up well.

[02:20.2]
So, an emerging market’s been one that wasn’t down much. It was basically 4 flat in the first quarter and already rallied almost another 16%, so far, year, or month to date. But anyway, now diversification pays off.

[02:37.7]
And I had a good story, was at a charity event with a client, or first week of April and they were really concerned, said, oh, I’ve seen all the headlines about NASDAQ and how much stocks are down, but was really happy to hear portfolio was essentially flat for the year so far at that point.

[02:57.1]
Really because of the diversification into things like international and real estate infrastructure. So it’s provided a smoother ride across the last couple of months. you know, the real thing has been the Iran war and its impact on inflation.

[03:13.4]
The, you know, definitely the headline there is inflation spiked in March to, you know, over 3%, 3.3%. Well, let’s, let’s get into that specifically because I think we’re feeling this, all of us are feeling this on multiple levels.

[03:30.2]
I know we were traveling. I had a vacation a couple of weeks ago and doing some driving. Number one, just watching gas at the pump get up north of $4 here in my corner of Pennsylvania, but then forget it being out in California. Yeah, filling up the premium gas and the fancy rental car.

[03:46.9]
I was like, this is, this is an economic impact. This is twice what I’m, twice what I’m used to paying here. Talk to me about inflation. Talk to me about cpi. Talk to me about this oil shock that’s dominating headlines almost two months into this event. Yeah, as I mentioned, CPI came in a lot higher than, or higher than expected at 3.3% in March.

[04:08.4]
And you can see here it’s a little hard to read this, but the green bar There is the impact of energy and the breakdown on, of inflation inputs. So that’s not shocking. But given how long kind of the wars carried on and the straight of Hormuz and lack of ability of oil to transit the world very freely, that probably will stay high for a little bit.

[04:33.6]
And the important question is what’s the impact? Or does it flow through to other goods, and service costs. So like we saw you know, back in 22, those higher energy prices did flow through but also as a result of kind of COVID slowdown into much higher goods prices.

[04:54.2]
So we’re not predicting that, but that definitely is the risk of a prolonged energy price hike. So let’s, let’s talk a little bit more about just on an inflation adjusted basis. This range I think is really important. We get the spikes, we get the drops, but what are the invest, like what are the investment impacts?

[05:15.5]
How does this shift in geopolitics? How does this shift in portfolios? How do we think about a chart that kind of hovers around that 100 line but then breaks way above and below once in a while? Yeah, we’ll talk more about behavioral finance later. But given it’s a lot of what we do, I think it’s context is important here.

[05:33.7]
You know, so many people have to remember, you know, sex and scare sell on the, the news and television. So I love the Today show, watch it regularly. But even them more like, you know, panic in their voices.

[05:48.8]
Gas prices are getting ready to be the highest in the past four years. So even though that sells in marketing, like we said, we’re in the business of providing comfort and clarity to clients. So in my mind that’s missing a lot of context around inflation adjusted prices.

[06:12.5]
So when adjusted for inflation, like they, you can see here, oil prices are actually near their 40, year average and well below, you prices we saw back in 2008. So, so I think the message is yeah, you definitely feel it at the pump and Nobody likes seeing a 4 handle or worse on gas prices.

[06:34.6]
But if you’re thinking about it in context, your overall life, the impact is not nearly as big as it’s been in some other times. Well, I like the sound of that, at least in context, even if it doesn’t feel that way. So the other part that I’m looking at, especially on the portfolio side, it seems like the most important thing in the world is are you a net importer or are you a net exporter?

[06:56.6]
And that shows up in everything from FX to bond Yields to the way we’re talking about geopolitics. Talk to me about this slide. Yep, the to your point, it’s really an important distinction now you know in the 1970s there was a energy crisis in the Middle east and really high prices in the U.S.

[07:18.3]
but back then the U.S. was you know that’s even to the left of this chart. But a significant net importer of oil or fossil fuels today, with increased production. The US is a net exporter of oil and gas.

[07:35.1]
So this actually will have some positive impacts on that segment of the market and potentially less. But it’s still a global good, and generally traded in dollars. So there’s the global impact, but it feels like it will be the negative impacts of this increase in energy costs are going to be felt more in Asia and even Europe.

[08:00.5]
So the other part of this then too is the impact that we’re seeing on yields from this. Walk me through the shift in the yield curve that we’ve seen since the conflict started. Yep, yeah, the first two months, the year yields trended down and were pretty well behaved but with the shock in March moved back, especially on the long end, pretty much to where they started.

[08:26.1]
So it’s a little like the fall leaves blow around but land back on the ground. We did see a reduction in rates on the, the very front end, but not real substantial. I guess the other thing this makes me think about is you mentioned the Fed meeting today.

[08:45.9]
As we transition to the Kevin Marsh Fed seems more likely that, that he’ll get approved. I think you mentioned very unlikely for anything to happen today. Even looking out to the end of this year, futures are indicating very likely to stay the same.

[09:03.3]
Maybe a 10% chance of a 1 20, 5 basis point cut and then next year a chance of one to two cuts. But it seems like potentially the Fed may be playing less of a role in the market than it has over the past couple of years.

[09:20.2]
Jack, do you think they’re holding their hand over the inflation mandate when they’re thinking about this just to tie it back to the inflation slide from earlier? Yeah, I think they’re, they’re probably some concern around inflation and making sure it doesn’t get out of control.

[09:37.0]
I know, I imagine nobody at the Fed wants to say it’s transitory for sure, but you know the labor markets have improved some but yeah, I think they’re still trying to balance both mandates. It’s an Interesting take.

[09:53.1]
And it’s also, I think a very important reminder that that inflation mandate is. It’s been with us since 2012. It’s not like this is etched in stone. So stocks down, then stocks up, oil up, then down a little bit, rates up, but then round tripping, inflation up, uncertainty up.

[10:12.4]
What else are we looking at here, Jack? Yeah, the. Oh, sorry on the last one. Still, I, my point was, going to be, even though, a lot of headlines have been around private credit on this one, the, private credit, has had some negative headlines.

[10:29.6]
But the, on the plus side is almost all the loans in their floating rate, so they don’t necessarily move with interest rates. So they definitely carry, some credit risk, liquidity risk, depending on how you’re doing it, but, less interest rate risk.

[10:48.6]
So we view that still as a diversifier. And then just while I’m talking private credit, the, a lot of the headlines have been around, some BDCs and liquidity, or liquidity redemptions from interval funds. And as we look across the market and dig into funds where we’re investing, particularly we, we see this as much more a, behavior driven issue with people kind of rushing for the exit in a crowded store versus real fundamental problems with the underlying loans, or economy there.

[11:24.0]
So, yeah, there definitely are risks in everything we do, but that’s why we try to put together a diversified portfolio with a bunch of cool levers that League is going to talk about. All right, perfect transition. Lee, let’s get you in the mix here.

[11:41.2]
Talk to us about the main ideas that we’re seeing coming out of the investment committee. Certainly we’ve had lots to talk about in this last quarter, including private credit and other themes. Yeah, so we, we kept. First off, I was looking for my crystal ball. I couldn’t find it. So if anybody here, at some point has seen it, you know where my office is.

[12:00.0]
So at a very high level, we kept our overall wrist stance neutral. Quarter. There’s plenty of risks that we talked about. There’s also economic growth in most parts of the world. Earnings especially, you know, this quarter, again, for I don’t know how many quarters in a row now, continue to remain strong.

[12:19.7]
So as, as Chairman Powell says, a balance of risk. So we, we see those as well balanced. We made a couple small tweaks. No, no real big changes to portfolios this quarter, Tom. We reduced our weighting ever so slightly to small caps.

[12:34.8]
We remain positive on emerging markets. Jack talked about those A little bit and how they’ve rallied so far in April. But most importantly, and it’s at the very bottom of this, but it’s core to everything we do stay diversified. That really helped us in Q, so far this year, plenty of very, you know, you look at portfolios and you’re like well it really didn’t move that much for Q1 given everything that happened.

[12:59.5]
And then in in Q2 we’ve seen a sharp bounce back. So that’s helped. You mentioned private credit. We have on there, it’s pretty easy to find portfolios with more that I’m more concerned about than others.

[13:16.4]
You generally have some, a lot of older software tech loans. Think like 2019, 2020 2021. For someone in a seat like mine as director of research, it’s not terribly difficult to find out how much of that is in a portfolio. And we’ve been allocating a big portion of our private credit exposure to you parts of the market that don’t really have much of any software exposures to think asset backed or some specialty finance.

[13:43.6]
So those they get lumped in to the category. But I don’t really think that’s fair anymore. So important just, and I know you’ve said this multiple times, private credit doesn’t mean just one thing. It used to. It doesn’t anymore. It’s a reminder.

[13:58.7]
I think we got to keep telling people. So beyond that let’s just talk about what else we’re focused on here. Yep. So you can move to our heat map of asset classes. We, we made one change but really not going to affect client portfolios that much.

[14:15.3]
So if you see on the right side of the page you see one asset class in red which is non US developed fixed income. Jack showed the some of the countries and regions and their relative import export of fossil fuels.

[14:31.5]
There’s plenty of those non US developed markets, especially in Europe and Asia that you know, the projections of rate cuts have went down given inflation has went up because they import so much of their fossil fuels.

[14:47.2]
That certainly cuts the chances of rate cuts and could lead to rate hikes. So for the most part, here at Sunpoint we don’t allocate to that asset class on a standalone basis. We’re relying on opportunistic fixed income managers, which are mostly public, to pick and choose the best loans they like in that sector and leave everything else alone, which is the same for leverage loans and High yield and emerging market debt.

[15:13.9]
We see the need to slice the apple, in such small pieces. That’s the only change we, we made this quarter. Nothing, in the far. The far negative category again in Q2. Thanks for making sure we have that placeholder there so it doesn’t look like we’re hiding the last thing that fell off the end.

[15:33.9]
We try to. We try. We try. Okay. The other crazy thing that happened we’re going to talk valuations is that the market took its proverbial swan dive before bouncing back. But part of that bounce back was the earnings story. So we’re seeing some pretty strong numbers come in at the index level.

[15:52.3]
We can parse that in more detail, give us the lay of the land for valuations after what’s been a very volatile. Yep. So this will, this will take a little bit to dive into, but it’s, it’s such an important topic, but let’s do it. Found this chart pretty interesting.

[16:07.6]
So your, Texas Longhorn orange is the essence forward essence, forward price earnings, the SP 500 and the dark green is the just the largest 10 stocks in it which is a big part of the s and P500. As you know, you see the names there at the bottom with prices down but earnings stable price to earnings have fallen to a much more reasonable level.

[16:33.2]
You see the chart here. As of early end, of early in April, the rebound in prices has moved the S P 500 to probably about 21 and it. And they’re probably the 24, 25 range but still well below levels we saw just last year where those you know, tech ratios were in the 35 to 40 range and hit there multiple times.

[16:56.9]
So large cap growth stocks for the year are positive now after the April rally, but not by very much. You know, think just not even 1%. So that’s certainly a positive towards, you know, equities that while still high in absolute terms, they’ve a lot more attractive than they were not that long ago.

[17:19.4]
Another part of the story, Matt, is the us versus non us of course there’s more than us than just the S&P 500. Different colored lines here. S and P at the top in the Navy ep So international developed stocks in the powder blue and then emerging markets in orange.

[17:37.7]
Of course everything sold off in March bringing those lines sharply down. And they have rebounded a touch in April but still at reasonable levels outside the US virtually relative to the S. And P 500 emerging, not that different than its 15 year average, even though it’s up 15%, or 16% somewhere in there so far this month.

[18:04.8]
So you know, valuations outside of the U.S. pretty fair. Not, not super cheap, not, not expensive either. And then the S&P 500 we just looked at. And then one other part of this emerging, markets, you know, versus developed markets.

[18:22.1]
We, we highlighted last quarter our upgrade of emerging markets on an earnings growth story. And we just wanted to highlight that’s still there. you know, em, earnings growth estimates, which is in part an AI first or second or third derivative story, with some of the major companies in that index.

[18:41.1]
But we’re still expecting very strong earnings growth out of emerging. Whereas in the US for that matter, it’s not on the chart. Whereas developed markets, I think mostly Europe and Japan, I mean they’re fine. There’s nothing wrong with 1314 earnings growth.

[18:59.1]
It’s better than a sharp stick in the eye. But we’re just not seeing the, the same level of earnings growth in ife, which is why we’ve been ticking up em, exposure just a little bit. Any comment on side of that? On just the, the contribution or the attribution of earnings in the emerging markets side.

[19:16.5]
Can we point at that and go, that’s really just a couple of stocks that are moving the needle on this whole thing. Or is it broad? It’s somewhere in between. So your, your tech stocks, I think especially in Asia, you know, earnings growth just off the charts.

[19:31.9]
But you also get some commodities exposure, especially in, in Latin, Latin America, that isn’t maybe as talked about as much. But if you’re exporting oil and the price goes up because of things completely irrelevant to you, you are perfectly fine with that.

[19:49.8]
So that’s, that’s buried in the, in the numbers as well. The, the data here is as of April 7th. So, Iran had started for more than a month at this point. All right, before Jack, I’m bringing it back to you. You’re going to give us your best Michael Pompeian impersonation. Just a reminder, the chat’s open.

[20:06.1]
You can post Q and A. We’re going to loop back to that in a minute and see what we’ve got there. But Jack, Behavioral finance, we like to say it illuminates everything we do here at Sunpoint with our pinkies raised in the air, sipping from our tea.

[20:21.4]
What can you teach us? Professor Jack Dwyer this quarter yeah, for sure. The, you know the main point of this slide is to avoid overconfidence and becoming too concentrated. So admittedly a little bit of a confusing slide. But I’ll try and talk through it.

[20:37.8]
Since Lee said Texas orange, I’m going to say sun point orange for the chart there at the bottom of the line which is average household equity allocation. So the lower that line is is actually a higher equity allocation which is on the right axis there a legend and on the left hand side is subsequent 10 year s p return.

[21:02.6]
So walking through this you can look you know back in 2008 there, the S P average household allocation was a little less than 30% kind of as I think people were worried about the financial crisis admittedly so.

[21:19.9]
But if you trace up from that you can see it’s one of the better S P trailing deck or following decade returns at almost 15%. On the other hand in the run up tech run up in the late 90s, early 2000 there you can see is the only other time really on this chart where household S and P allocations got to be bigger than 50%.

[21:48.6]
So admittedly some of this is just from not rebalancing and maybe in taxable accounts that’s hard. But you can see there the following decade returns are one of the few 10 year time periods where S and P returns have been negative. So moral of the story is household s and P500 allocations are high relative to their history.

[22:12.0]
And we just want to be cognizant of that and careful about overalllocating, you know, also displaying recency bias overalllocating, something that’s done well lately. So making sure we have those diverse fires still that did well in the first quarter like international and real estate and, and infrastructure.

[22:30.8]
I think what’s amazing about this too is it reminds us of the flow story where it’s if lots of people are relatively underweight equity exposure, then there’s potentially more money to move into that space and it helps pushes push prices higher.

[22:46.2]
When we see periods where this is elevated, it’s kind of like where’s that marginal buyer going to come from for sure. And then like any good two handed economist, I have to say on the next side, even though I told you not to get too excited and buy too much of the s and P500, I’m going to tell you hey, even if things sell off, don’t freak out and sell too much of the s and P500.

[23:09.3]
I mentioned some people were worried in the first quarter as we saw peak to trough drawdown of 9% the S&P500, which is totally normal. So we just broke this slide out of the archive. It’s one we use from time to time after a quarter like this with a good reminder that average intra year drawdown for The S&P 500 is over 14%.

[23:36.0]
Even though the vast majority of years, you know, 35 out of the last 46 end up with a positive return. So while, while you shouldn’t be all loading up on the, the Mag 7 is a huge overweight in your portfolio.

[23:53.6]
Sticking to that long term target and rebalancing to it regularly really pays dividends over the long term. Fantastic to be reminded of this. Still one of my favorite JP Morgan slides in there. So reminder. Enter questions in the chat. We’ve got at least one that I want to hit here.

[24:12.1]
Lee, I want to give this to you because Jack already talked about it a little bit. The flatness of the yield curve. I haven’t heard anybody talk about yield curve inversions or anything like that yet. Maybe that’s a good sign, maybe it’s not. Does flatness mean anything? It’s not inverted today, that’s why nobody’s talking about it, but it is relatively flat.

[24:29.6]
Just looking at treasury yields as of this morning Again, April 29th is what we’re having this conversation. You know, you’re not really picking up much yield from three months to one year. You pick up a little bit from two and then you pick up a little bit more in 5. The steepness is in that 5 to 10 part of the curve where you know, you’re getting an extra at the moment, 36 basis points and treasuries to go from 55 to 10.

[24:54.3]
So that generally means. Right. You need to be a little bit more selective where we position taxable fixed income. It’s very different. Municipal bonds, you still have a steeper yield curve there. So we’re a little bit more comfortable taking duration risk in mun than, than taxable fixed income.

[25:13.3]
But absolute yields in taxable bonds are still pretty good. You know, 10 year treasuries at 439 at the moment, which means we have plenty of investment grade fixed income portfolios that are yielding high fours to mid fives.

[25:30.3]
That’s better than inflation right now, even at a higher level than it has been. So it’s one of those, darn if you do, darn if you don’t balance. A risk in, in taxable fixed income. But it’s the shape of the yield curve is important for positioning and something we, we talked a fair bit about.

[25:49.5]
But another use those opportunistic managers that can do that in the U.S. and also things like emerging market debt if they want to play in it, which all have their own yield curves. Yeah, there’s not just one yield curve.

[26:05.0]
They’re all around the world. Jack, a follow up inside of that for you and tied in back to the inflation point if. I know nobody wants to use the word transitory, but if an oil shock, by definition a shock is a transitory thing, how does that affect the shape of the yield curve? I would say not, not a lot of impact because the, I think the assumption is that it’s not long lived right now.

[26:26.9]
So yeah, I think status quo. But again the good reminder to stay diversified so we don’t have too many chips on any one big particular bet. And hey, it’s nice to see bonds as a diversifier for a minute again. Right? Yeah.

[26:42.2]
There you go. Keep the 2022s away. Well, I’m showing the disclaimer that can only mean one thing. We’ve reached our conclusion. Lee and Jack, thanks so much for joining us. I want to encourage anybody, if you didn’t get a chance to ask a question or for another one pops in your head at 3:00 in the morning, SunPoint Investments.com come visit us.

[27:01.5]
Say hello. We’d love to answer them. Jack and Lee, thanks for joining me. Sounds, good. Have a good day everyone.