How ETF investors are keeping sight of their long-term objectives, amidst wild market swings
Speakers
Christina Partsinevelos — Host
— Chopping Block co-host
Summary
- Geopolitical headline risks are historically transient and should not deter investors from maintaining their long-term market exposure.
- Private equity and credit markets are showing early signs of stress, with major players experiencing 30 to 40 percent drawdowns, though the risk is not yet deemed systemic.
- The US economy remains fundamentally strong, supported by the potential for tax cuts, tariff cuts, and rate cuts.
- Capital is expected to rotate out of the Mag-7 tech stocks and into broader cyclical sectors like industrials, energy, and materials that possess pricing power in stagflationary environments.
Trade Ideas
"I think the bigger concern I have is more about what's going on in the private equity and private credit space where, you know, if you look at like, you know, Blackstone, KKR, Blue Owl, you know, some of these stocks are down, you know, 30, 40% in the last three months." High-yield credit spreads (specifically BB versus CCC) are being monitored closely. If credit conditions worsen, these alternative asset managers face higher default risks in their private credit portfolios and a slowdown in deal-making, which directly impacts their fee generation and valuations. WATCH private equity and credit managers due to widening credit spreads and recent sharp drawdowns, monitoring for signs of systemic contagion. If the economy remains robust and rate cuts ease borrowing costs, credit stress could evaporate, causing these alternative asset managers to rebound sharply.
"We just think it's not in the Mag-7 stocks. It's in the broader you know space..." The market is rotating away from mega-cap technology stocks into broader sectors of the economy. As fiscal and monetary stimulus (tax and rate cuts) permeate the broader economy, the extreme valuation premium of the Mag-7 becomes harder to justify compared to cheaper, cyclical alternatives that benefit directly from a strong domestic economy. AVOID mega-cap tech as capital rotates toward value and cyclical sectors that offer a better return per unit of risk. Tech could continue to dominate market performance if AI monetization accelerates or if a sudden economic slowdown pushes investors back into defensive, cash-rich mega-caps.
"Some of these sectors like industrials, energy materials sectors that you know, can benefit from like an elevated, you know, let's say, stagflation environment..." A strong US economy fueled by tax cuts and tariff cuts, combined with an elevated stagflation environment, creates a perfect storm for hard assets and cyclical sectors. Industrials benefit from reshoring and protectionist tariffs, while energy and materials possess inherent pricing power when inflation runs hot alongside stagnant broader growth. LONG industrials, energy, and materials as a strategic play on a resilient US economy and persistent stagflationary pressures. A severe recession or a sudden deflationary shock would destroy demand for commodities and severely crush cyclical equities.
