By now, you’ve in all probability heard the Michael Cembalest of J.P Morgan quote in all places—particularly since Josh Brown dropped it on CNBC barely an hour after I’d learn it myself. All of us get these experiences on the identical time—however he’s well-known and on TV, and I’m only a schlub. Nonetheless, the quote’s too good to not repeat, even when you’ve seen it a dozen occasions on social media:
“Right here’s the attention-grabbing factor concerning the inventory market: it can’t be indicted, arrested or deported; it can’t be intimidated, threatened or bullied; it has no gender, ethnicity or faith; it can’t be fired, furloughed or defunded; it can’t be primaried earlier than the subsequent midterm elections; and it can’t be seized, nationalized or invaded. It’s the last word voting machine, reflecting prospects for earnings development, stability, liquidity, inflation, taxation and predictable rule of legislation.”
Everybody at all times desires a solution to, “What’s occurring available in the market?” and the reply often lies in earnings.
Inventory costs are a mirrored image of the anticipated future earnings after which a hypothesis premium, each of that are mirrored in a P/E ratio. As a fundamental orientation, a P/E ratio of 20x means that you’re paying $20 for each $1 of earnings a inventory generates. When the denominator, the earnings, turn out to be suspect, risky, or in jeopardy, inventory costs inevitably observe.
Proper now, the market is signaling loud and clear: earnings matter most, and volatility is right here.
In his current observe, Cembalest emphasised investor discomfort with the Trump administration’s aggressive tariff insurance policies, which create vital earnings uncertainty.
David Kostin at Goldman Sachs echoes this, noting:
“The S&P 500 entered -10% correction territory this week as traders digested the implications of coverage uncertainty on the financial outlook. We trimmed our S&P 500 earnings estimates and diminished our year-end value goal to 6200, representing 10% upside from present ranges… the current efficiency of shares delicate to capital markets exercise means that post-election optimism round a broad-based surge in exercise has diminished. The typical inventory amongst different asset managers, advisors, and funding banks shares rallied by 13% (vs. +3% for the equal-weight S&P 500) between Election Day and the top of January, however since then has declined by 23% (vs. -7% for the equal-weight S&P 500).”
Josh Brown bolstered these views on his CNBC spot, noting markets are quickly repricing danger:
“Earnings come first, sentiment second. So long as commerce tensions and coverage uncertainties persist, count on continued market swings.”
The underlines are mine and I feel so long as earnings readability stays elusive, they’ll proceed to be proper—and so will we.
How Monument Wealth Administration Manages Danger
At Monument, we’ve constructed a sturdy, data-driven course of particularly to navigate market volatility successfully.
Our funding fashions are trend-based—we capitalize on what’s working within the markets and keep away from what’s not. As an alternative of creating predictions, we observe a “weight-of-the-evidence method”, integrating relative energy rankings, valuation metrics, and broader market indicators to make goal selections. This ensures that we keep invested in strong-performing securities and keep away from these with weakening momentum.
Disciplined, Information-Pushed Choice Making
Right here’s a fast breakdown:
- Relative Power as a Aggressive Benefit: Our fashions constantly consider securities based mostly on their efficiency relative to their friends. Which means that even in a rising market, we prioritize investments demonstrating the strongest momentum, making certain that we systematically minimize underperformers and allocate to leaders.
- Promote First, Reallocate Second: Not like many funding methods that target selecting winners, our fashions determine what to promote first. Solely after eradicating an underperforming safety can we search for a substitute, making certain we keep a portfolio of high-performing property relatively than merely including new ones.
- Valuation Self-discipline: We don’t blindly chase high-growth shares or speculative property. As an alternative, our fashions apply an affordability check to keep away from overpaying for overvalued shares. This ensures that we allocate to securities with sturdy fundamentals, not simply sturdy momentum.
Tactical Danger Mitigation Throughout Market Downturns
When the market alerts sustained declines, our method adapts to the pattern as an alternative of preventing it.
- Holding Money as a Tactical Protect: Money is the very best hedge and when the information suggests we needs to be on protection, any proceeds from securities the fashions promote are quickly held in a liquid, low-volatility cash-equivalent ETF relatively than being instantly reinvested. This prevents reinvesting in declining property and preserves capital till the market stabilizes.
- Systematic Reinvestment When Traits Enhance: As soon as the information suggests it’s time to maneuver again to offense, we systematically redeploy money from the cash-equivalent ETF again into the shares that every the mannequin identifies as trending upward once more. It’s not good, it can by no means perform on the high or backside of a market, but it surely helps traders take part in recoveries with out prematurely committing capital throughout market stress.
- Avoiding Emotional Market Timing: Many traders react emotionally to downturns, both panic-selling or making speculative reentries. Our rules-based method removes emotion from the equation, making certain that funding selections are made based mostly on knowledge, not sentiment.
The Consequence: A Danger-Aware, Adaptive Funding Course of
Our systematic method to danger administration helps be certain that we keep away from holding “melting ice cubes”, that means that shares with deteriorating momentum are promptly eliminated.
We don’t combat downtrends—capital is preserved in cash-equivalents throughout extended declines.
We observe the information to reenter markets strategically, making certain our portfolios align with prevailing market energy.
We prioritize earning money over being proper—eradicating human bias from decision-making.
By following this disciplined, rules-based course of, Monument Wealth Administration goals to guard shopper capital throughout downturns whereas positioning portfolios for what we consider is healthier, long-term development.
Let’s hold the dialog going—readability issues, particularly now.
And as at all times…
Preserve wanting ahead.
Dave
