S&P 500 In ‘Doomed Position’; What’s Next After Meltdown | Bill Smead
Speakers
Bill Smead
— Founder, CIO, Smead Capital Management
Summary
Bill Smead, Chairman and CIO of Smead Capital Management, discusses the March 2025 market selloff, tariffs, and what he sees as a vulnerable, overconcentrated S&P 500. He favors energy, natural gas, commodities, Treasuries, cash, homebuilders, and cheap value/dividend stocks, while warning on expensive wide-moat names, electric utilities, green energy, AI euphoria, Tesla, and Coca-Cola. The interview also covers liquidity, Fed policy, unemployment, and Canada.
- Bill Smead says the S&P 500 is overconcentrated and in a doomed position, with liquidity drying up as Fed and Treasury support fades.
- He favors energy, oil, natural gas, commodities, and Canadian/Apache oil exposure due to expected supply scarcity.
- He likes homebuilders, Treasury bonds, and money market funds as defensive or recovery-oriented ideas.
- He sees value and dividend stocks as cheap and likely beneficiaries when growth and quality leadership unwinds.
- He warns green energy/ESG, electric utilities, AI-related stocks, Tesla, and Coca-Cola face subsidy, regulation, or valuation risks.
- Macro discussion covers tariffs, unemployment, the Fed rate path, and possible Canadian recession risks.
Ideas
S&P 500 overconcentrated, vulnerable to bear market
Bill Smead argues the S&P 500 is in a doomed position because it became overconcentrated in aggressive, popular mega-cap and wide-moat stocks at record concentration, while U.S. households, especially baby boomers, are unusually overexposed to equities. With valuations extreme, Fed/Treasury liquidity drying up, and any unwind requiring stock selling, he expects a difficult and potentially multi-year bear market and says the crowded S&P trade must unwind.
Costco valuation extreme, normal multiple far below
Costco is a great company but trades around 61 times earnings, similar to Coca-Cola's 1972 Nifty Fifty peak. To return to a normal upper-teens or 20x multiple, the stock either needs to lose roughly two-thirds of its value soon or go nowhere for a lost decade.
Energy producers benefit from coming supply scarcity
Smead is overweight energy because Permian fracked wells decline quickly and the basin will no longer be the swing supplier over the next decade, making oil and gas scarce and allowing producers to earn strong returns without volume growth. He also likes Canadian producers with long-life wells and says large U.S. oil companies may buy smaller ones rather than drill aggressively.
Canadian long-life oil wells gain value
He likes Canadian oil producers that own long-life wells, such as Montney and oil-sands assets, because their reserves will become especially valuable as Permian production depletes. He says the firm owns at least one such Canadian stock.
Oil scarcity drives prices higher
Oil is likely to get scarce over the next decade because the Permian's fracked wells deplete rapidly and were the swing supply that kept prices down. He dismisses the idea that Russia will pump much more after peace, arguing Russia was already pumping to fund its war, so oil prices should rise.
Apache is beaten-down Suriname oil play
He likes Apache because it has been kicked around and has large production in Suriname, giving it specific exposure to the coming oil-supply scarcity.
Regulated electric utilities offer capped returns
Investors bidding up electric utilities on nuclear-reactor and data-center power demand may be making a mistake: electric utilities are highly regulated and their returns are controlled by regulators. He says the better way to profit from electricity demand is natural gas, not regulated utilities.
Natural gas demand and prices rise
Natural gas is the cheapest energy source and demand should rise from Africa, India, coal-to-gas switching, and U.S. electricity generation, which already uses natural gas for about 40% of power. He argues the way to profit from electricity demand, including data-center and nuclear hype, is natural gas, not regulated utilities; the price has already risen from $1.80 to about $4.50.
Commodities bull market still early after correction
Commodities as a group were never cheaper relative to U.S. common stocks than in 2020, a 220-year low. He believes that launched a major commodity bull market; the first surge has been followed by a scary correction, and widespread anti-oil/ESG sentiment means the bull market is still early.
Cheap value and dividend stocks favored
Bearish individual investors tend to own cheap value and dividend-paying stocks, which have been beaten up badly for years while Nvidia and the Magnificent 7 soared. He sees those cheap, dividend-paying areas as likely beneficiaries when the crowded growth and quality trade unwinds.
Treasuries can beat S&P over decade
He believes earning about 4% annually in Treasury bonds over the next 10 years would beat the S&P 500, and for 60-to-80-year-olds living off investment income, having a substantial allocation to guaranteed-rate Treasuries is a no-brainer. Falling yields and a wide mortgage spread also support the defensive case.
Homebuilders benefit as mortgage spread normalizes
He is positive on homebuilders because the 30-year mortgage spread over the 10-year Treasury is abnormally wide due to fear. At a 4.21% 10-year yield, a normal 150-180 bp spread would imply a 6% mortgage versus the current roughly 6.6%; normalization plus demand from 180 million Americans under 40, older first-time buyers, and baby boomers refusing to sell should support a housing-led recovery after the next recession.
Green energy hurt as subsidies disappear
Federal budget cuts and the removal of environmental subsidies will hurt green technology and green energy badly because those businesses were not economic without fat subsidies. Money poured into ESG funds and ETFs has already lost for years, and he expects subsidy-dependent green investments to struggle.
Tesla vulnerable if EV tax credit cut
Tesla stock appears to depend on the $7,500 EV tax credit; if environmental subsidies are cut, its economics and valuation would be vulnerable. He uses it as an example of an uneconomic green business propped up by government support.
AI euphoria risks severe bear market
AI is a legitimate development, but it is occurring inside a financial euphoria that resembles a Ponzi scheme or chain letter. The worst U.S. bear markets followed the most important legitimate developments, such as radio in 1929, semiconductors and the moon landing in 1969, and the internet in 1999, so AI in 2023/24 is another warning. With no Fed/Treasury liquidity backstop, when the trade breaks liquidity will only come from selling; DeepSeek was a warning shot.
Money market funds beat losing money
With Fed and federal liquidity no longer supplying the market and stocks vulnerable, investors are raising cash by selling equities and parking it in money market funds, which still yield about 4%. He says that beats inflation now and beats losing money in stocks, even if positive real returns may not continue into 2026.
Coca-Cola expensive and weak protection
Coca-Cola is a high-quality, wide-moat staple, but it has performed poorly ever since Buffett bragged about it in 1997 and still trades at a high multiple. At around 30 times earnings, he argues it will not provide the defensive protection investors expect.
Up Next
This The David Lin Report video, published March 06, 2025, features Bill Smead discussing SPY, COST, XLE, Canadian oil producers, WTI, APA, XLU, UNG, DBC, Value stocks, Dividend-paying stocks, TLT, XHB, ICLN, ESG funds/ETFs, TSLA, AIQ, Money market funds, KO. 17 trade ideas extracted by AI with direction and confidence scoring.
Speakers: Bill Smead · Tickers: SPY, COST, XLE, Canadian oil producers, WTI, APA, XLU, UNG, DBC, Value stocks, Dividend-paying stocks, TLT, XHB, ICLN, ESG funds/ETFs, TSLA, AIQ, Money market funds, KO