First Quarter Earnings and Other Investment Trends: Jarvis Update March 2025

It's the end of Q1 and plenty has happened. Is it time for investors to change course? Or should they stick to the plan? We answer that and cover much more on this week's Jarvis Update. I'm your host, Brian Dress, Director of Research here and also an investment advisor, joined as always by our CEO and Chief Investment Officer, Nolan Langford. Nolan, welcome to the program.

Thank you, Brian. Looking forward to this warm-up here in Chicago, and, uh, can't come too soon.

You're right about that. Um, we're also really excited to be back here because it's been a little bit of a time since we've done a video. And to be honest with you, there's a lot that's gone on over the last couple of months. So, um, we're glad to be back with the listeners and, uh, discussing some of our thoughts. So, Nolan, there's a lot that's been going on in Washington and otherwise. and investors have been questioning a lot of what they're seeing. So we've got two topics for you guys as we normally do. And the first topic is what's happening and how should you respond? And then the second topic is refreshing on the topic of AI, which has been a theme we've been following quite closely over the last couple years. So just quickly, we're going to jump right into it. Nolan, um, some clients have been asking for our thoughts because they're trying to navigate a pretty difficult and challenging and a changing landscape. What have you generally been telling those who are feeling skittish?

So I think if there are people who are not somewhat concerned or haven't been on edge, they probably haven't been tuned into the news the last 6 weeks. Okay. And I think it's interesting where we are. I like to back up a little bit. I think people know the news of the day, the tariff talk.

Yeah.

I think that bothers people. I think what bothers people a little bit more is maybe some of the attitudes we have towards some of our allies— Canada, Mexico, Europe, right?

Yeah, I didn't know we were warring with Canada. That's new.

Yes, there's just a lot happening, and it's happening with this administration quickly, right? So think about, um, the election of Trump, uh, that first week of November, all the excitement in the markets. I remember the small-cap index was up like 5% that week, right? So a lot of hope, and we got that Trump bump. Mm-hmm. And it seems like, you know, something happened. The light switch came on in mid-February, Feb 14th.

Okay.

And people looked around the world and didn't like what they saw. So definitely was a change in attitude and sentiment starting February 14th.

Okay.

And so now the question that we must ask is, where are we now? Well, we know April 2nd is a major date. I think a lot of people are kind of holding their breath until April 2nd, right? That's when this Trump administration has announced what they're going to do in regards to their tariff policy.

Okay.

I think people are worried about the retaliation that may happen from some of these other countries. I think the big fear is that what will happen will be inflationary. And since we don't have huge growth here in the US, we have good growth but not great growth. And if you just have okay growth, but you have inflation, that's called stagflation. We remember stagflation, right? But we don't remember it kindly.

No.

And I think that's what people are starting to worry about. Maybe some of their worst fears may be a bigger possibility than we thought just a few months ago. So I think that's where some of the fear comes from.

You know, the stock market's a projection machine, as we know, especially in the short term. And so, you know, If we feel good, usually it goes up. If we feel a little skittish, if we feel a little bit of fear, no matter what it's coming from, it can go down in the short term. But you know, also that can be opportunity. So we'll talk a little bit about what the opportunities are and how we might advise people to sort of take advantage of what's going on and react to what's happening. So we'll jump right into topic 1, which is what's happening. So Obviously lots of change in the government and also in the mood of the market. As you mentioned, maybe one of the worst Valentine's Days ever. I don't know who just said February 14th, but we were kind of in a raging bull market for the last couple years in 2023 and 2024. A little bit frustrating that now we're into kind of a period of uncertainty and we know the market hates uncertainty. So again, that's probably a big part of what's going on. How are you viewing the events of the first quarter, Nolan, as we look to manage people's portfolios and people come to us for advice on how to handle these things? How are you looking at the events right now?

So let's just put it out there. There are no easy answers. You know, it's almost one of those things in the short term. You tell me what Trump's going to do and I can tell you what we should probably do in response.

Well, the problem is, does he know what he's going to do?

Very unpredictable. And so all of those things are unknowable. And I'll just remind, especially our investors, when you think about kind of the macroeconomic factors, elections, trade talks, tariffs, interest rates, currency rates, international markets, that's what's called my— that's what's called, um, macroeconomics and macro forecasting.

Yes.

We stay away from that primarily because those are very unknown variables. They change quickly. And even if they change in a way that you think, you still may not get the price action you think you're going to get. Yep. So it's adding a bunch of unknown variables that really complicates what's kind of a simple process. When you do investments, you want to find some company with superior products and service, with good management, good fundamentals, that has a tailwind, and you want to hold them for as long as they continue to have those attributes.

Exactly.

And you want to ignore everything else. The moment you start putting other things into your forecast, you start getting all type of wacky input, wacky outputs. And that's how you really be careful. So you mentioned the first quarter. So if we just put the tariff talk aside, yep. The fact that we want to renegotiate the MCA, how many people, immigrants, we're letting into the country. Let's just put all that to the side for a second and just talk about how individual businesses are doing. So first quarter earnings were just released. I give it a mixed bag.

Okay.

And it's interesting because the first half of the quarterly earnings release, the first few weeks, I would say I would've given it very high marks. B+, A-. Company's doing a really good job of meeting what Wall Street expectations were. Products and sales are doing really good. And then the guidance that company CEOs were given was pretty healthy.

Okay.

Uh, and then after the Trump tariff talk, the second half of the earnings announcements, um, the market was in a much more foul mood. I think companies had to start to inject more of the uncertain other possibilities talk. I remember we were talking a few weeks ago and the Target CEO came out and one of the analysts asked him, well, you know, what is your forecast for this year? And he said, you know, well, based off tariffs, whether they're on or off, how much and where they are, he says, we have 9 different scenarios, 9 scenarios we're planning for. Like, that's, that's the epitome of the unknown. And you know, the market hates That's the unknown. So I would say on the individual business side, businesses are doing okay with the information they have. Okay. But it's really hard to plan. You know, if you don't know your cost, it's hard to plan.

Yeah.

If you don't know your demand, how many people are gonna be buying your stuff, it, it's really difficult. Yeah. And if you have both of 'em working, you don't know your cost or you don't know your demand, you know, you're really scratching your head. It's a tough way to be. Yeah.

I didn't do enough advanced math to be able to handle multiple variables like that, Nolan. So I want to go back to something you said just a little bit ago, which was, I think we're in the ignore everything else moment, right? Because what you, what you mentioned, a lot of what you mentioned is macro factors. Yes, they have an impact on businesses, but we're more interested in what's going on in the individual businesses and it's different for everyone, right? So what I think a lot of people are wondering is how do they respond to what's going on out there? So you did kind of mention we want to sort of ignore a lot of the macro factors. I know it's hard. You know, we want to buy low and sell high. That's obvious. But when things are going well, you want to buy. When things are going bad, you know, sometimes people want to sell. So how do we respond to kind of what the emotional right-brain side is telling us and do the left brain, you know, do things the left-brain way and kind of get people from here, from point A to point B?

I think one of the things that is really difficult for a lot of people is to kind of keep their emotions and their political ideology out of their portfolio. It needs to stay out of the investment conversation full stop.

Highly.

Yeah, and I think what— I think a good thing to remind people is historically the USA has been the most profitable place to invest, period. And owning US stocks has been a winner. And this is throughout time. This isn't a 10 or 15-year horizon. You know, we always talk about the modern stats that we give are post-World War II, right? But even if you go back to prior World War II, I mean, buying US and buying American businesses, high-quality companies, has been a really a willing strategy. And that's including the fact that we've had Vietnam, we've had World War II, we've had the Cuban Missile Crisis, the great financial crisis, the Great Depression. We had the Y2K tech bubble burst. We've had COVID. I mean, we've had some awful things happen. And if you look at a long-term chart, what you're going to see is the market continues to move up. The line tends to be jagged. It's not an escalator line. So what do you do in those valleys? Right now, this is kind of a valley. You know, the market had gone straight up even prior to February 14th. We had hit new records in the S&P. And so typically every year we get some sort of correction. I think the reason that we're scratching our heads is, do we know if this is just a correction? Might it lead to something more in the short term? That's kind of unknowable, right? But let's talk about what we do know right up to the minute. So what we do know from an economic standpoint, the shopping malls are doing very well. We heard from Simon Property Group this week. So the malls are doing well. Actually, they are pre— they're, they're, they're higher than their COVID highs. So that's really good because we heard malls were dying, but they're back strong again. They have multiple tenants and rents are up. So that tells us people are spending.

Good signal. Okay.

Cintas, the uniform and safety company that really touches small and mid-sized businesses throughout the country, really strong revenue growth, 8%. So that tells you industrial activity is up and continuing to grow. Paychecks, who for most midsize and small businesses throughout the country, you have a payroll vendor, usually for really big companies is ADP, for smaller and midsize companies is Paychex.

Right.

Um, and what Paychex tells us is that payrolls are up, uh, their revenues are up 6%, and through their database, payrolls are up. Okay. So we have strength there. Also travel. We just heard from Carnival Cruise Lines last week. Yeah. The ships are full. Pricing is higher. People are prioritizing spending on vacation and they're booking sooner and further out. Okay. And then finally, we've heard from the, we've heard from the homebuilders. We have Lennar on the lower end of homes and at the very high end we have Toll Brothers. Right. They build semi-custom homes, but it's in that million-dollar price point. So very much at the higher end here, we've got kind of divergent paths on the lower end. I still think you have consumers in the U.S. that are struggling. Right. It's been that way for a couple of years. I mean, you've heard that at Target, you've heard that at Walgreens. Sure. And you certainly have heard it with the homebuilders. And I think with the homebuilders, there's a few other factors that are happening economically. Right. You know, one of them is interest rates. Mortgage rates are higher. We're still over 6%. That's an issue. And even though home transactions are down, prices are up year over year. That's a really bad combination for housing. Higher prices, not a lot of inventory. And high mortgage rates. So on the short— on the lower end, a little bit of weakness with housing. But at the higher end, Toll Brothers put up a really big quarter. So people at the very top end, although there will be some wealth effect from stocks being down, yeah, they tend to be hanging in there much better. So economically, where I'm getting to is right now it doesn't look like we're headed toward a recession. The economy is cooling somewhat, but it doesn't look like it's recessionary and it certainly doesn't look like it's heading into a ditch. And if you look at stock price action the last 6 weeks, you would've thought we were headed into a ditch. Right. But it doesn't, it certainly, it doesn't look that way based off the data. Yeah.

And you can also look back and think, you know, there was kind of, I don't know, I guess you said after Trump, but still was elected, but also going into that, you know, kind of a strong market, maybe a little bit of an overshoot to the upside. So maybe a little bit of give back there, which not totally unhealthy. You're right, there's a bit of a bifurcation in the economy. The upper end is doing well. That might be a structural thing going forward too. So we'll have to keep an eye on that. But there's definitely money to be made in a few different areas. And it is, like you mentioned, in housing, the demand is still strong. It's more of a supply issue there. So we'll keep an eye on all of those factors. I did want to move to topic 2 and move on here. Which is Resetting the AI theme. So we've talked about AI a lot and all, and over the last year on these videos, this is a theme that we've been aggressively playing for clients. And you know, you talk to anyone out there, just the average Joe on the street, a lot of people are using ChatGPT, which, you know, that's not necessarily the needle mover for the business, but it gives you an indication that, you know, adoption is really increasing for AI, right? So, We think AI obviously has the potential to be a game-changing technology on the technology side, but also from the investment point of view. And you've talked a number of times about how you think it could be, you know, one of the most profound opportunities of your lifetime from an investment point of view. Can you talk to me a little bit about what's going on in AI stocks in 2025? Because there has been some softness in some of those stocks.

You're right. So just for all the listeners to sort of level set, You know, artificial intelligence is basically technology replacing the human brain and doing things in a more sort of technological, mechanical way. And it is a big revolution. So in order to do AI or artificial intelligence, you do need a few things. One of them is you need chips, which is pretty much NVIDIA. You need computing power and you need a lot of it. And then you need data and you need a lot of, a lot of that. And so since ChatGPT bust on the scene a couple of years ago, there's been an explosion in usage of artificial intelligence. And still now it's still a really, really new technology. What it does and the promise of it is a lot. One of the things it does is makes us more productive already. So again, I've often said if this is a baseball game, is not only not the first inning, really the game really hasn't even been scheduled yet. That's how new it is. The promise of it though is it makes us all more productive. So I'm gonna give you an example. Even with the language models that they have now, you can take like a law firm as an example. Typically if they're going into a case, you may have a, you know, a junior associate that goes in and spends 100 hours looking up case law to submit a brief to a senior partner. Right now you can have ChatGPT do that work. Right. You can have it do it in moments. What does that do for the law firm? Well, first off, not only does it, do they get the information quicker, but it costs them a lot less money than paying this junior associate $200,000 a year.

Right.

And that's why I said you're gonna see artificial intelligence adopted everywhere. Are just technology companies using technology. It'll be even the most basic businesses will do it because it will save them money. It'll help them innovate quicker. Right.

It—

that's the offense, but it's also defensive because if the business doesn't adopt and use AI and integrate it, then they run the risk of a competitor using it better and forcing them out of business.

Definitely.

So that's why we've seen this massive spending toward artificial intelligence. That really is just getting started. Okay. Now what we've seen since, um, since mid-January, or just, and I think we've seen some softness. I think there's two big reasons. I think one of, so what people say is it's this Deepseek moment. And for those who aren't familiar, Deepseek is just a model, a language model that was put out by some Chinese firms. You can find it in the iTunes store, but it's a Chinese language model. And I think what happened and why it spooked people a little bit is because when you look at the model, there were advancements that the Chinese made that we had not made yet. And furthermore, um, they actually used a lower-level chip, so a couple generations ago GPU from NVIDIA. It wasn't the latest NVIDIA chips, right? And so people, people look at it the wrong way. Maybe they thought that this was a bad thing or death knell for AI. Instead, I think people forget—

they poop their pants all the time, right?

Yeah. The rule of technology is the cheaper something becomes, the more widespread or more increase in usage you have.

Absolutely.

So I think ultimately it's a good thing. So that's the first thing. I think the Deepseek moment had people sort of reevaluating, is this AI thing real? I think the other thing is a lot of these companies, particularly the big hyperscalers, you know, Microsoft, Meta, Google Cloud, Oracle, they have spent and announced spending plans that run tens of billions. I think on the low end, $50 billion.

Massive.

Yeah. And up to $85 billion in the case of Microsoft. And investors starting to ask themselves, okay, you're laying out all this money. That means short-term your free cash flow and your margins are going to go down.

Right.

Now, how quickly can you turn that investment into revenue? And right now we don't have that answer yet. And so people are more skeptical.

Unknown, right?

Yeah, it's the unknown again. You add in the Trump tariff fear. And so people just sell first and say, I'm just not willing to pay as much for this business.

Okay. So we know that's going on. A little bit of softness in the AI stocks, which had been ripping for the last couple of years. NVIDIA obviously being one of those. NVIDIA's down, I don't know, about 20% from its high now here at the end of March. With the stocks, they've lost their momentum a little bit in 2025. So how should investors respond?

So typically, if you, you know, so we do this video for our clients, but we also do it for other— we have other listeners that maybe aren't clients, but maybe they like good information and maybe they're thinking about becoming clients, right? I think if you're a client and you already have a portfolio, It's well established, you have a plan, it's diversified. I don't see a reason to really do anything differently. Right. You know, we're not— our game isn't to try to avoid every 5 or 10% downturn. Got to sell at exactly the right time and then to be smart enough to buy the exact same moment the market hits the bottom.

Yeah, I think we're better making zero decisions than two decisions. I mean, over time it's difficult to make good decisions in the market. So if we can find the right stock and get in it, it's a lot better to just stay with it than to try to sell at the top, buy at the bottom. And then there's tax implications to that, all that too. So do you think it's an opportunity, say you're underinvested in AI stocks right now, which most of our clients wouldn't be, but a lot of the people out there maybe aren't investors or kind of missed the wave of last year. Is this a good opportunity to look at some of those stocks?

Absolutely. And it's not just artificial intelligence. You know, I said we do like technology, but it's not just that. You have consumer discretionary stocks that have really sold off that we like. The cruise lines I mentioned earlier, for example, Royal Caribbean is down over 30% over the last 6 weeks. I think that's an opportunity. We like that. Communication services is an area that we like. You know, Spotify is a name that we've talked about in the past. The sell-off, and even some old favorites, some industrials like Exxon. You know, Exxon's down over 20%.

Why?

The last 6 weeks. There's no reason why. Earnings were fantastic. And, and so you don't necessarily have to do artificial intelligence. It's the same thing with cybersecurity. We're going to have a cybersecurity event at the end of April. We know with the onset of artificial intelligence, the bad guys have better tools to be worse people. So cybersecurity is an area that's going to increase in importance and focus and dollars are going to continue to go there. So even though stocks the last 6 weeks have come in and you have an opportunity to buy some of the best, and I guarantee you, we get out 2 years from now, nobody's ever even going to remember this moment.

No, it's going to be just like a little V on the chart in a couple of years. But Nolan, that's good. We'll leave it right there. I just do want to mention, you know, there are a lot of stocks that have been kind of put on sale over the last few weeks. You know, I think it makes sense and behooves an investor to pick through kind of the wreckage in there, but there's some really good gems there. We'll leave it there. But we, you know, obviously sometimes when we have pullbacks in the market, it feels not so great at the moment, but it is an opportunity. As Nolan mentioned, we do have the cybersecurity event coming up on April 29th. We would urge you all to take a look at that. We'll put a link in the description so that you can sign up for our webinar. We'll be coming to you live at 4 PM Central on that day talking about cybersecurity. We've got a cybersecurity expert that will be joining us. So we're looking forward to seeing many of you on that day. We'd also ask you to like and share the video if you find these videos useful to you as an investor and it helps other investors like yourself find it and hit the bell for notifications and subscribe. That way, you know, each time we're out with these videos, usually it's every couple of weeks. But Nolan, we've been on a bit of a hiatus. But we're back in business. So great to be back with you. Nolan, any final thoughts as we close out here at the end of March?

Yes, I have 3.

Okay.

You said the end of March, so March Madness, or hopefully everybody's got their brackets in. Go Sparty, go Florida. So that would be one. The other thing is we talked about opportunities after a downturn. For all of you who still have money in an old 401(k), at jobs you're no longer at. You're just in a broad-based mutual fund. I think this is a really good time to consider rolling over, moving the money to your IRA, and then you can take advantage of some of these individual names that have sold off 15%, 20%, 25%. It is a quick way to catch up when the market bounces back. And then the third thing that I would say is I know this market has spooked some people and a lot of people are still sitting on cash at the bank. I'll remind you, if you're just in your checking account, the interest rates are still well below zero— well below 1%. Excuse me. We do like income securities now. Sure. Not very volatile in today's market. On average, with the income securities in our model portfolio, 7% to 8%. The income streams either quarterly, sometimes they pay monthly, and a lot of the income's tax advantaged. So even for people who aren't buying it, who still kind of want to stay out of harm's way, I think income securities are definitely worth a look.

All right, so if you got cash on the sidelines or money in your old 401(k), get in touch with us. We'll put our information here on the bottom of the screen so that you can give us a call. We'd love to talk to you about growth stocks, income securities, anything in between. So we'll leave it there for this week and we'll see you again next time here on the Jarvis Update.