Money Matters with Greg
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Money Matters with Greg
Episode 152: Bear Markets and Buying Opportunities: Why This Pullback Might Be Healthier Than You Think
The markets have dropped 8.6% from February highs, and uncertainty looms large, but is this really cause for alarm? We're dissecting what's actually happening beneath the headlines in this timely episode of Money Matters.
Greg welcomes his brother John Farrall CFA and Chief Investment Officer for Farrall Wealth to the show, bringing fresh insight into the recent market turbulence. Together, they analyze how uncertainty—particularly around tariffs and trade policy—has triggered supply chain disruptions and significant market volatility. While consumer sentiment has plunged dramatically, they reveal an interesting counterpoint: small business optimism recently hit a near 20-year high after bottoming out just last May.
The brothers dive deeply into the MAG7 stocks (Microsoft, Apple, Google, Amazon, Meta, Nvidia, and Tesla), which comprise approximately 23% of the S&P 500 and 40% of the NASDAQ 100. These market leaders have seen substantial corrections, with some down 16-50% from recent highs. Yet they emphasize perspective: the S&P is only down 4% year-to-date, which is hardly the catastrophe many perceive.
What stands out is their balanced approach to market corrections. Rather than viewing this pullback as something to fear, they frame it as a potential opportunity. "I love going into the store and getting 20% off," Greg notes, comparing stock buying to discount shopping. The discussion highlights how defensive plays like utilities (up 2.5%) and financials (down just 1%) have provided stability while growth sectors have struggled.
Ready to make informed decisions during this market pullback? Listen now to understand why staying consistent, remaining diversified, and potentially increasing allocations during downturns may serve investors well in the long run.
Email Greg at greg@farrallwealth.com with any questions about your investments or the current market environment.
Securities and advisory services offered through LPL Financial, a registered investment advisor. Member FINRA/SIPC.
The opinions voiced in this podcast are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may suit you, consult the appropriate qualified professional before deciding.
Welcome to Money Matters with Greg, where we dive into the money conversations shaping your life, from investments to estate planning, insurance to taxes. We cover it all with a fresh perspective. Join Greg and his guests each week to get inspired and take control of your financial future. Let's get started. Securities and investment advisory services offered through LPL Financial, a registered investment advisor, member FINRA, sipc.
Speaker 2:All right, good morning. The show's Money Matters with Greg. I'm Greg Farrell, ceo and president and owner of Farrell Wealth. It's a wealth management firm here in Valparaiso, indiana. We are broadcasting today on podcasts wherever you pod, but also on WVLP 103.1 FM. Excited to be back on the radio here locally in Valparaiso, indiana, but also broadcasting throughout this World Wide Web thing, that is, throughout the world. So a number of people listening from all over and wanted to welcome in John Farrell, a new addition to the Farrell Wealth team, and then also my esteemed brother, very excited to have him as a part of the team and welcome John. If you want to say hey to everybody out there in the world, give a shout out.
Speaker 3:Hello, welcome to join for the first time, first of many.
Speaker 2:Yes, first of many, I hope for sure Very excited to be able to do this today and have John on. John is very well versed in the world of investments and that's why we love having him on board. That's what we want to talk about. Today was really just talk about the market and what has happened here in the last few weeks, the last month. People are concerned, they're worried and we thought it prudent to talk about some of the things that have happened here in the market overall. So we're tagging this podcast as the uncertain podcast, because the market loves certainty and even if because the market loves certainty and even if Washington and the people in Washington can not agree on anything, the one thing we can certainly if if they don't agree on anything, it's it's certain that they will not agree and usually that is very good for the market, because nothing gets done. Right now we're seeing the opposite of that and things are very uncertain. We don't necessarily know where things are going. So I wanted to bring in John talk about some of the things that have happened, where the market is now, where we look like we are going, talk about some of the names that have been out there in regards to some of the S&P 500 and some of the companies out there as far as reporting and just have John kind of talk about some things. I'm going to ask him some questions and if you in the audience want to email us, you can email me at greg at farrowwealthcom with any questions as well, and we will have multiple questions on this show, but then also in the future. So thanks again for being here Again. Wv also in the future. So thanks again for being here Again.
Speaker 2:Wvlp 103.1, last housekeeping thing. The opinions voiced in the podcast are of general information only and not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision. Again, money Matters with Greg. We're excited to be back here. I think it's 150 second episodes. So, john, welcome John. What are you seeing out there in the market?
Speaker 3:Well, what we're seeing, at least recently in the market is how you started the podcast there, greg, which is some uncertainty, and the number one uncertainty not to get into too much politics, but it's politics, it's tariffs and it's how much to where, for how long, just as a bargaining chip longer term. President Trump has said that, hey, it's got to be fair trade, and we are all for fair trade. We're all so open for open trade. Unfair with tariffs is like somewhere in between that. You know it's not fair per se to have 200 or 300% tariffs on certain things because certain countries want to protect their you know internal, like industries, and yet we have that globally in places across different you know nations and you know Nirvana no tariffs anywhere on anything, and equally no tariffs on either side. We don't have that a whole lot of places either, to be honest. And so President Trump has said he's going to do what he promised in getting reelected and he's moving forward on making trade more fair. Now you know that's the uncertainty, because we have 25% tariffs on aluminum in the morning, followed by retaliation, followed by 50% tariffs, followed by retaliation or backing off, and then suddenly we'll just pause for 30 days on no changes to tariffs and that's the kind of uncertainty that I think it's not just the market, it's the companies also don't like that kind of uncertainty. And you've seen some shifts and we're going to get into CPI and some inflation numbers and some earnings trends.
Speaker 3:But you've seen some shifts in supply lines, seen some shifts in supply lines. I mean, others can read the tea leaves and they can move production to some degree or supplying to some degree. There's an awful lot of buying, particularly of copper and some other raw materials, just before tariffs, just before Trump was inaugurated there in January 20th. So February got pretty choppy, march has gotten choppier and most economic indicators have a two to three month lag. So we're just starting to see some of those.
Speaker 3:You know I'd say import, export, like turbulence kind of numbers, just like a hurricane. You know a hurricane disrupts the normal pattern of people going to work, coming from work, because they can't get to work. Same thing with what we're seeing. We're seeing a little hurricane in global supply chains based on tariffs and what we think might happen or what others might think might happen, and it's crowd psychology. At this point, what you think might happen is you want to shore up your supply chains against your competitors. Move to domestic manufacturing as best you can. Everyone else is doing that as well, and contracts are being bid for some of these things, and they're being bid up, you know. So we're seeing price inflation.
Speaker 2:And when consumers are uncertain they typically turn negative about their views. And that's really been seen in the economic indicators. In February the University of Michigan household survey that we rely so much upon it really monthly plunged to 64, just below 65. And that was a tumble of 9% from the January level and then down another 12 from the December level. So it certainly feels like the sentiment is really negative and that's why in the market we've seen these 500, 600, even 1,000-point drops where people are just saying, look, I'm just going to sell and get out and just see where things read, the tea leaves, run to conservative investments and just circle the wagons a little. Are you seeing the same sort of thing out there?
Speaker 3:Well, it depends on where you look and not everything is negative. Actually, one of the things that's been positive again back to some of the sentiment, some of the surveys. We had almost a 50-year low in the Small Business Economic Survey, the NFIB, the Optimism Index, almost a 50-year low back May-ish and we've seen close to a 20-year high just recently hit. So a big swing in small business sentiment to the positive. Now, hiring challenges might frustrate some main street owners as opposed to the big, big firms finding qualified workers and some other things that frankly, again with politics, you know if those workers are undocumented and you know potentially being deported. There's going to be some more changes for small businesses in the next three to five months, but a big swing positive People.
Speaker 3:As you know, clients tend to only look at their statements month to month or quarter to quarter, but it's clearly in the news that the markets have corrected. We're, as far as I can tell, from right to second. We're down about 8.6% from our high that we just hit on the S&P of February 19th. So we're not quite one month into a correction on the S&P of February 19th. So we're not quite one month into a correction on the S&P. I was looking at some other.
Speaker 3:you know just kind of drawdown numbers, because my point here is sentiment is often correlated with, well, how you know how my investment's doing and my investments have been doing extremely well since since the low of covet back in 2020 and we're coming off two back to back up 20 years in the s p 500. So we're coming from elevated space. Any kind of pullback, any kind of drawdown feels kind of catastrophic and I think we're seeing some of that right in the near term. But pullbacks are typical and to be expected of 10%. We see that on a fairly high frequency. We just haven't necessarily seen it and when we're seeing it, yeah, it's been a little while. And when we see it they all feel better in the rear view mirror. None of us enjoy a drawdown as it's happening, that's for sure.
Speaker 2:No, but it does seem, with all the drawdowns we've seen and you and I in our careers have seen, as far as you know, value I mean I was devaluation of the peso all the way back to, you know, dot com boom, dot com bust Same with you. You know you've been through all of that 2008,. You know you took a pandemic. I mean, you know we traded through a lot of things in our life. You know this actually feels like as painful as it is for looking at a statement, it feels like a very healthy drawdown, added volatility. Obviously. Vix has gone from 14 to 28. So people are nervous, but that's very normal and it's very healthy for the future of the market. This has not been crazy. It's just been sort of a slow, methodical down draft based on news, based on concern, based on, again, uncertainty in the markets. Is that kind of what you're seeing here or are we in panic mode?
Speaker 3:I would say it depends on what you're looking at. I was, you know, I was looking at some, some things here and um, one of the things that we face now that is a little different. Maybe this time it's a little different. Those are always dangerous things because history usually right, you know, usually is the way to to go with your investments, um, but in this particular drawdown we have a fairly concentrated S P 500 and a fairly concentrated QQQ, triple Q or the NASDAQ 100. As you mentioned, the VIX index index. The VIX is the S&P 500 volatility index, which is market cap weighted, so it by nature is also concentrated toward the top names and the MAG7 stocks. The top names are a significant portion of these indices. I think, as I looked just today, they're right around 40% of the NASDAQ 100, and they're somewhere around 23% of the S&P 500.
Speaker 2:Which is huge. I mean that's why we've had such a run-up in the S&P the last couple of years is these you know, the MAC 7 have just taken off.
Speaker 3:Yeah. So again, it sounds kind of traditional to say, but it is true A more diversified portfolio does weather these drawdowns better. The S&P is down about 8%. The NASDAQ 100 is down 12%. Both are down from their peak the same amount of time. So both hit a peak just February 19th, just February 19th. It's not been that long to be in this quote drawdown.
Speaker 2:So the audience knows today's March 12th.
Speaker 3:Yeah, march 12th, we're not even a month in, we're 20-some days in. However, on the other hand, one of the Mag 7 stocks Microsoft, hit its all-time high 250 days ago, back in July, and is down 20%. Another one of the Mag 7 that's down almost 50% from its high set, its high in December, and that's Tesla. And that might be a little bit more politically related than one would like to think. If they're just a fundamental earnings type of driven type of shop and we tend to be that, you know, tesla's earnings have not gotten cut in half and it doesn't justify the stock being cut in half. But the ceo, elon musk, is, you know, been pictured an awful lot doing his job for the government, not necessarily with his emblem as CEO of Tesla, and it's bothered sentiment again. And it certainly doesn't help that Tesla's look to be a political football lately with again, it's. It's just here in March and this past weekend we had various demonstrations, some of which became violent, at over 50 Tesla dealerships. So that one might be an outlier on the downside, but the fact of the matter is the MagSeth, magseth and stocks, even excluding Tesla Nvidia is down 23%, google's down 20%, amazon's down 18%, meta's down 16%. That could very well be a buying opportunity longer term.
Speaker 3:However, these stocks have flown pretty hard pretty far and a pullback in these stocks is not unexpected and we're seeing closer to a bear market pullback in the MAG7. 20% is the definition of seeing closer to a bear market pullback in the max 7. 20% is the definition of a quote bear market and you know, for most of them they are somewhere in the 60 to 85 day range. So they all kind of hit highs there in the I'll call it the Trump bump. You know, from November 5th until mid-December we saw markets go up pretty much in a straight line and most of these stocks hit highs either there 12.17 or 12.18, or just recently here in February. So we're off highs and you know if, if we look at percent off lows, you know the lows are all the way back in COVID in 2020.
Speaker 2:Well, just a few months ago, I had clients. You know why don't? Why don't we own this or why don't we own that? You know, because it's run up so much. You know we've been, we've been sellers, you know, so we don't own it right now. And now, you know we've been, we've been sellers, uh, you know, so we don't own it right now. And now, you know, people are concerned, like, well, I don't want to get in now. It's like this is the time. I mean, this is when fear is uh, this is an opportunity, if anything, to to, if you want to add exposure to your equities.
Speaker 2:Um, I'm a huge fan, as I explained to many people throughout. You know, just the advising world. We all like to shop at a discount. I love going into the store and getting 20% off and I mean that's where we are. So what's wrong? Is the product changed so much that it's not something I want, that I expect 30% off, or even 40% off maybe. But you know, if you're running a diversified portfolio, that I expect 30% off or even 40% off maybe. But if you're running a diversified portfolio and you're in multiple different asset classes and owning many, many things as modern portfolio theory that we believe in.
Speaker 2:There are some things that have done really, really well this year. It's not just the S&P. I mean the S&P right now for the year is down 4%. I mean it feels like it's down 20, the way the sentiment is. But we were just up. I mean we were just up what 3.5% for the year and the year had just started, you know. So you look at what's actually down for the year and it's it's not, you know, awful, it's just painful, um I'm not.
Speaker 3:You know those. Those are absolutely the correct. You know ways to think about it. Um, I'm, I'm not even, unless we're talking single stocks. I'm not even sure it's all that painful, right.
Speaker 3:But you know, sectors tend to be a little bit more volatile than the major indices because, again, of a concentration. So if Amazon is a big proponent of, proportionally, of the S&P or the NASDAQ 100, it's a huge contributor to the consumer sector as far as consumer discretion, which is down 14% year-to-date. So you're spot on S&P down about four, nasdaq down around nine, small cap also down around nine, but consumer discretion, that's kind of Amazon's territory down 14. And technology in general down 11.8. That's the NVIDIAs and others in the world and what you've seen is you've seen, you know, kind of like the more defensive plays actually provide a lot of stability.
Speaker 3:Financials only down 1%, utilities actually up 2.5%. Those are places that we kind of rotated into and or trimmed what was large gains toward the end of the year and this early this year. So it's kind of like not unexpected that you know the PEs of the MAG-7 would get price to earnings ratios on forward earnings PE, that those would get compressed a little bit because excluding the MAG-7, the S&P forward PE ratio was, you know, only around 18 to 19 times, so it wasn't that high. But if you look at the S&P with, the ratio was only around 18 to 19 times, so it wasn't that high. But if you look at the S&P with the MAG-7, it was closer to 23 times. And if you look at the MAG-7 stock they were closer to 28 times.
Speaker 2:Yeah, which is expensive.
Speaker 3:Which is pretty expensive.
Speaker 2:That's like going into Saks Fifth Avenue or any really Tiffany's and asking for the most expensive thing on the rack and don't give me a discount, I want to pay full price. You know that's what we were feeling like. For sure, real quick. Just want to mention the show's Money Matters with Greg. I'm Greg Farrell, ceo and president of Farrell Wealth, a wealth management firm here locally in Valparaiso, indiana, in the Midwestern charm of a great town. We work with clients nationally, we're licensed in 21 states and talking to markets here with John Farrell and really just try to address what's going on out there in the markets, just because we've had such a drawdown. The show's also broadcast on WVLP 103.1 FM, so I want to be able to station identification overall, john, as we kind of wrap up here.
Speaker 2:You know what are your thoughts about the next steps here as we talk about? You know it is just March. I know we were up for the month in january. Uh, historically, january is so goes during january, kind of so goes the year. Um, you know, maybe you could talk about that. As far as like where we see, uh, you know, things in the future, we're certainly not. Um, I think as a group we're certainly not scared of equities. I think it's more of an opportunity than anything else but you want to talk about, kind of you know, what your thoughts are for the rest of the year here.
Speaker 3:Certainly, and one other kind of just you know, for the record, I'm down here in the Tampa Bay area, as you know, fair wealth is expanding and growing and that's, you know, kind of like with the markets, where we're paid to figure out where the growth is and where growth is at a reasonable price, and we were kind of talking about some things that are priced maybe for perfection and whatnot. Again, greg, if you want to hit it, you know this doesn't constitute any kind of solicitation on any kind of sale, on individual security at all, but I would say the greatest risk here and one of the phrases might be, you know, march in like a lion, right Out like a lamb. We're used to that across the Midwest and we've certainly had some nice winter storms here lately, but I'm kind of hopeful that that's the case. The January barometer was up five or so. We finished January up almost 5% or around 5%. That tends to be great for the markets. However, we've given all that back and we are down for the year, so climbing out of the hole and making the year a positive year.
Speaker 3:I would say those estimates of a triple 2020, 20% in a row for three years in a row, I wouldn't go there. I wouldn't go there, but I would think that so far we're seeing only modest earnings revisions. We're only seeing modest fundamentals. We're basically seeing turbulence. The one thing that was said on the major news here recently, and it is something to kind of bear witness to, is we are invested in corporate America corporate earnings. However, corporate America, of course, lives know, lives off of. You know what the general economy is doing and there was an awful lot of stimulus to the economy. Fed cap rates very low, raised rates just recently, you know has been on a pause, so they're not seeing a sign of a recession. And whether or not recession starts to kind of show up in some of the numbers so far I don't think it has. The consumer sentiment numbers might still be a lag effect from various policies, from previous administrations or just what was going on, and we had some major disruptions to the economy. I can attest to that. Three hurricanes through the Tampa Bay area within two and a half months certainly has dampened the Southeast economy quite a bit and the Atlanta Fed has seen some major changes there.
Speaker 3:But I would say for the average listener here, one of the greatest risks is something that we talked about internally just this past week, which is look, if you stay fully invested and you're a consistent saver, over time your portfolio does the best. If you're an inconsistent saver and you try to pick and choose or you know worst, you basically get scared into cash. You know when things get rocky and you never come back out, that's when you do the worst. So, again, asset allocation and having a disciplined investment philosophy are paramount, especially in times when things do go off price and you don't know how long the sale is going to last. We don't know if this is a quick seven-week sale or this is going to be closer to the Microsoft situation, a nine-month sale.
Speaker 3:There's an old adage, greg, that you're well aware of as a trader they ring a bell at the end of the session. They don't ring bells at the high of the markets, they don't ring bells at the low or the bottom of the markets either. You know, picking tops and bottoms is nice in theory, but staying consistent and maybe upping the allocation here, you know, toward what is not cheap, for a reason just cheaper than what we were used to, is a great idea. So, rotating into equities versus rotating out into cash, you know, warren Buffett said it well and it comes to mind, you know, strive to be greedy when others are fearful and fearful when everyone's greedy, and everyone was pretty happy and pretty greedy, you know, toward the end of last year, which is one of the reasons why we quietly, you know, raise some cash and move some things around away from, you know, the stocks that had done so so well for the last year or so.
Speaker 2:Yeah Well, we can be certain right now that things are very uncertain for sure, and that's until we work through this paralysis, really not only the business side, but on the political side. You know, just trying to figure this out. I think time will tell. You know, again, very, very prudent advice to follow good names. Research good names, follow the stocks that you want to buy, that you want to own for the long term. Um, diversify your portfolio. All those lessons are really really prudent right now and coming to fruition where you know, for a while there just everything went up. So that's not the case. We can certainly attest to that. Um, you know, just be calm, carry on and and invest wisely. For sure, john, john Farrell's here to been joining us here today on money matters, or? Greg, john, I want to thank you for being here. Thanks, you know. Certainly look forward to this in the future. That's great, all right, thanks again, john. And that shows money matters for Greg.
Speaker 2:I'm Gregrell, ceo and owner of Farrell Wealth. It's on WVLP 103.1 FM here locally and then anywhere you pod as well. So thank you for being here and being a part of this and if you have any questions, feel free to email me at greg at farrellwealthcom. It's like Will Farrell, but he spells his name wrong it's F-A-R-R-A-L-L. And again, just as a reminder, the opinions voiced in this podcast and this show, this radio show, are for general information only and not intended to provide specific advice or recommendations for any individual to determine which strategies or investments might be suitable for you, consult the appropriate qualified professional prior to making a decision. Thank you very much for the lawyers and the compliance department. John, thanks again for being here and we'll catch you again on the next show. Thanks, saul, take care.
Speaker 1:Thanks for tuning in to Money Matters with Greg. We hope you gained some valuable insights today. Remember your financial journey is personal, but you don't have to go it alone. If you enjoyed the show, be sure to subscribe and share Until next time. Here's to making your money work for you. Securities and investment advisory services offered through LPL Financial, a registered investment advisor member, finra, sipc.
