Investment Education

Joining me now on set. We've got Bryant VanCronkhite, who is the Allspring Global Investments Senior Portfolio Manager. Great to have you here in studio with us. So, you say investors shouldn't be focused on timing the market and when the market will bottom and when that will happen. So, what should they be watching instead?

Yeah, it's one of the most common mistakes we see. Whenever there's risk or fear escalating, we see people trying to figure out when are things going to happen? When are the negotiations going to start? When should I get into the market? Instead, the focus should be on what is going to happen. And it seems pretty clear to me though what is easier to solve for right now. For example, we're probably going to have some economic strain as consumers and businesses adjust to the new landscape and adjust to uncertainty. We're probably going to see that clear path for the Fed to cut rates eventually, not right now, but eventually. And that's going to drive action in the market in a certain direction. Let's understand that and start thinking about that long-term plan as opposed to trying to guess the near-term whens of the problem.

Markets always try to look out to the future as far as possible. And so when we see any type of downturn on the way down, it's the uncertainty about what could take place in the future. But then once we eventually do see a bounce or in some cases a dead cat bounce, it's giving us a little bit of the inclination as to how far out the markets could be looking or adjusting for. How far out is that in your estimation as of right now based on some of the bounce that we're seeing here today?

Yeah, this is still going to be messy, I think, right? We're going to have to go through some ups and downs still. We're going to see some turbulence when it comes to earning season coming up. We're going to hear CEOs and CFOs talk about how they're not really sure what to do. But they're going to navigate this. What we're looking for right now are companies that have a horizon where they can invest through this downturn, not around this downturn. And so think about a company that's going to have a 12 to 36-month mindset, they're not going to pull back on smart investments just because there's some uncertainty, a bump in the road. So I'm thinking 12 months out plus. And I think investors should begin to think about moving capital methodically with that mindset as well.

I was thinking about some of the projections that we had seen for earnings growth for Q1 2025 and from FactSet, they had said the estimated year-over-year earnings growth rate for the S&P 500, 7%. If 7% is the actual growth rate for the quarter, it's going to be the seventh straight quarter of year-over-year earnings growth reported by the index here. What needs to take place, what needs to be heard from the street about what the outlook going forward? It's not just what they're reporting, but also in the guidance, that's the key.

I actually think what they report is less relevant right now. It is the outlook. And if you go out as a CEO, CFO and say, I haven't figured it out, this is what's going to happen, you're not going to gain credibility. I think what investors want is a clearing event, right? We look at the overall market right now.

What does a clearing event look like? Does it mean pulling guidance? Does it mean just resetting expectations?

It's resetting expectations. I don't think you want to cause panic and say we have no idea what to do. What you want to say is, look, the near term is a little bit more unclear to me. What we're going to do though is we're going to continue to use our balance sheet to buy back stock under pressure. We're going to continue to grow our dividend for those investors who want that. We're going to continue to invest strategically around these key initiatives that no matter what happens in the next 12 months, the next 36 months, we're a bigger, better business because of it. And that's what we're going to focus on. So we want to see expectations be calibrated down, allowing us to build up that base going forward.

Within that, what's the keyword? What do you think the theme is of the common denominator that emerges this earning season?

Well, I think we're going to hear the word uncertainty a lot, okay? Then from there, I think we want to hear is strategic importance. I want to hear companies talk about what matters to them. The last thing you want to do is cede control as an investor to the things we can't predict, the changes in GDP, the changes in inflation, the changes in tariffs. But what I can predict with confidence is how this company is going to invest in growing their future value and how they're going to control their own destiny. So, what I'm looking for is what's strategically important to you, why, and let's walk through how we're going to methodically build to that game at the end over the next several quarters.

For investors who are trying to figure out what their playbook is, as they began the week hearing about, oh, we could potentially enter into a bear market and now they're looking across some of the areas that have been beat down within the market and trying to figure out their time horizons and where it makes sense to add into some positions. Where does it make sense to fade a trade versus lean into a trade at this point?

Yeah, so let's talk about what is going to happen. We said the when is tough, but the what's a little easier, right? So as the Fed and as the market mechanisms come back into play and kind of restart the economy off of whatever trough that happens to be, we're going to see rates move lower. We're seeming to see a shift in support for the middle to lower income wage earners, right? The blue collar workers and that's going to be done through pushing down mortgage rates, pushing down auto loan rates, pushing down credit card rates, and those consumers are going to have the ability now to use lower cost of capital to advance their initiatives in life. You're also, I think, going to see a tax bill that favors no tax on tips, no tax on social security, deductibility of car debt on car purchases. These are all tilted one direction. So we want to begin to move capital into things like home builders or companies that benefit from building supplies. We want to move capital into companies that ultimately are going to see that lower end consumer reaccelerate out of what's been a bit of a slump for them, right? That's what we're looking for right now.

Any specific names within that thesis?

Absolutely. So the largest home builder in America, DR Horton, to us has gone through a strategic shift in how they run their business over the last three years. That shift is ongoing. There's a massive pent-up demand for house development. We're underhoused here in America. They're in the leading position, and even if costs go up for them, they're going to be in a better position to buy at lower costs than all the other peers, and they're likely going to see share gains through that. Sherwin-Williams applies the paint to homes. We're going to see home turnover reaccelerate as rates come down as well. So on the building product side, I like that. I also think healthcare is interesting for other reasons, but another place to start dabbling as well.

All right. Well, we're going to continue the healthcare conversation in just a moment. So you teed that up perfectly. Bryant, thanks so much for taking the time here with us.

Always a pleasure.