In this weekly Jarvis Update, Brian Dress (CFA, Director of Research) and CEO/CIO Nolan Langford discuss the recent market turmoil and present a new investment approach. They begin with a market recap showing sharp declines in the S&P 500 (‑5.5%), Nasdaq (‑6.8%) and Russell 2000 (‑7.2%) over five days, rising Treasury yields (10‑yr ~3.25%, 2‑yr ~3.5%), hawkish Fed commentary, and sector‑specific shocks such as Nvidia’s AI‑chip ban to China and soaring Miami rents. They label the current environment the “nothing is working market,” where both equities and bonds are falling and the Fed appears intent on cooling the broader economy. The hosts then give stage‑specific investor guidance: younger, accumulation‑focused investors should view lower equity prices as a buying opportunity, while preservation‑focused investors can benefit from higher yields on quality bonds. The centerpiece is the “enhanced bond portfolio” strategy: purchase investment‑grade bonds trading well below par (e.g., a Boeing 2034 bond at 80 % of face value) to lock in a 3 %+ coupon, and redeploy the capital saved (the discount) into equities with upside potential. This creates a hybrid of guaranteed income and optional equity return. The episode ends with a call to action for listeners to contact the firm, sign up for newsletters, and a brief note about upcoming college football and NFL coverage.
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Markets look positively awful this week. Are there any securities worth buying? We answer this question and more on this week's Jarvis Update. I'm your host, Brian Dress, Director of Research here at Left Brain, joined as always by our CEO and Chief Investment Officer, Nolan Langford. Nolan, welcome to the program.
Thank you, Brian.
Well, I'd like to say we, we Rather be here on better circumstances, but we're here every week to tell you the story of the markets. This week, a quick preview for you. Second straight week of selling. There was acceleration to the downside without a doubt. We've got two topics for you as we usually do. The first topic, the nothing is working market. And then the second topic, it's gonna be a new bond strategy that we're tentatively calling the enhanced bond portfolio. So we're gonna have those two topics for you. But before we get started, few announcements. First of all, we produce this show for you, the everyday investor, whether you have a 401(k) or an IRA, if you work for your own account or you've got an advisor that you're working with. If you'd like a second opinion in a difficult market, we'd love to talk with you, share our thoughts. Make sure to give us a call at the number below. Also, if you're an institutional investor, we've got something for you. That's our research service. That's 8 to 10 full-length stock reports per month. And then The Chosen, That's our favorite stock and favorite bond opportunity each month. And that's out this week. So check that out. We'll put the details below as well. Either way, we'd like you to sign up for our biweekly newsletter. That's gonna be out this week, non-week. So check that out. Finally, we've been seeing the viewership numbers creeping up here on the YouTube. We appreciate that, of course. We'd like to know more about the community though. So leave us a comment below. We'd love to continue the conversation. And then of course, like and share the video if you find it useful. And subscribe, hit the bell for notifications so that you find out when the next video comes out. And we're out every Friday. So with that said, we'll move straight to the market recap. First of all, the S&P was down 5.5% for the last 5 days. That's from Thursday's close last week to Thursday's close this week. Nasdaq down around 6.8%. And then the Russell was the worst, down 7.2%. We saw downside acceleration the last couple of days in all 3 indexes. A lot of crosscurrents going on right now. The first of those is the 10-year Treasury rate is creeping up. We're back to about 3.25% on the 10-year, and then the 2-year Treasury is up to 3.5%. So a lot of movement in rates, bonds falling. Federal Reserve hawkish talk seems to be hanging all over everything. We've got a number of Fed governors out there, uh, speaking their mind and spooking the markets. Uh, we also had the announcement Thursday, uh, that Nvidia is going to be barred from selling certain artificial intelligence, AI chips over to China. So that spooked the market in tech. So, Nolan, with that, all that in mind, what are your initial thoughts?
You pretty much covered it all. And none of it was great news for us bulls here the last couple of weeks. And you're right, there's a huge crosscurrents. You know, we always talk here at the micro level, not the macro. That's what individual businesses are doing, how their customers are buying their products and services and what the companies are doing with the cash earnings they receive in the door. And for the last 3 or 4 weeks, uh, this earnings season has been a lot more exciting than what we've seen earlier in the year. And so it's been really a bifurcated earnings season. We saw the first week, uh, earnings flop. That's when the banks came out. Market was very depressed. Uh, the following 2 weeks, the market was really excited. So even when companies, uh, announced earnings and they missed earnings expectations, you still got solid action and price movement. And even in the retail space, some of the areas that have been struggling. Not so the last 10 days, 2 weeks or so. Markets have actually flopped and turned that on its head. And now you have companies that beat, raise, do a really good job with earnings. CrowdStrike is a name that comes to mind in the cybersecurity space, and the markets just flat out pan the stocks. And so it's almost like the market's a manic depressive and it can't make up its mind. Maybe it has to do with the Fed and the hawkishness. Maybe it has something to do with recession talk. The reason I scratched my head over both is both of those stories have been around a long time.
Right. And we've also seen this pattern too, Nolan, about the last 3 or 4 quarters where there is some excitement after positive earnings and then we get out of earnings season moving in. So sort of that dormant period and then we're focusing back on the macro again. So I guess we're back there again until earnings come out again. So That's where we stand and we'll move on to topic 1. So topic 1 this week, we're calling the nothing is working market. You know, as we've said over the last few weeks, the markets had gained steam during the summer, but that's all been sort of erased in the last couple of weeks quite quickly. Again, rates are continuing to move higher, interest rates across the curve and across different credit spectrums. But so bonds are also falling. So we've got stocks and bonds falling again. We never love to see that. And then finally, as we said before, Fed is now being explicit that they want markets lower. That's the stock market, that's the housing market, and I guess even almost the job market. So, Nolan, what's your take on what's happening now in this nothing is working market? What can you give us a little color behind that?
Yeah, I'm going to throw another one out there. I think you mentioned housing. I think the rental market as well. You know, the rental market had gone crazy for our viewers and everybody else that knows. I live most of the year, at least half the year here in Miami. Left Brain has an office here. We're trying to grow in Miami. So I spend a lot of time here and it's ground zero for those unbelievable rate increases in rents. Rents have gone up, at least downtown in Miami, in the Brickell area, well over 50%, 5-0, over the last 2 years. It's just stunning. And I think the melt-up is what the Fed wants to actually deflate. Sitting here at ground zero, I'll tell you it's working. Rents here are no longer on the boil. They're almost on the freeze. At least they're not going up and they're tend to be coming down, not an alarming rate, but what the Fed is doing with rates is working. And every area of the economy is starting to cool. The question is whether they can have the quote unquote soft landing, that is, things cool enough where they don't put us into a recession, but they cool enough to get things back to normal. That's that 2 to 3% inflation range that the Fed is comfortable with. There's a lot of doubts to whether they can have that soft, soft landing. Some days the markets and investors are more optimistic than others, and that's kind of what you see. So my take is it's still uncertain And depending on what day you come into the market, what data point you look at, the market tends to change its mind quite a bit.
So, Nolan, there's a lot we can't control as investors. Obviously, the Fed is one and commodity prices. We've got all sorts of different aspects of the market that we can't control that has an impact on us. But what can we control? What can investors do? And should they be patient here? Think about the long term, make changes? What kind of is on your mind as far as that goes?
Yeah. So we would encourage all investors, if you're not working with advisors, certainly we'd love to sit down and talk with you here. For our current clients, we do have a game plan in place, short, medium, and long term. Nothing's perfect, but we do have a plan and we can adjust that plan. So my first thought for investors is to get somebody to talk to. And what you do and how you handle it will depend on your individual circumstances. You know, if you're early career, meaning that you're in this phase where you have extra money to save and invest in your, you know, in your 40s or younger, then lower shares for you are actually a boon. If you're buying shares monthly through your paycheck, through your 401(k), or when you get extra money saved up in your savings, you actually want to be accumulating shares at those lower rates. Generally, you're not going to use the money for years on end, so you don't want to be buying at higher amounts. You want to be buying it lower prices. And so you should be smiling, should have a buy list of the quality A-rated companies that you can buy now cheaper. I feel a lot better about things. Prices are going to be higher. And I think it's more difficult if you're in that preservation stage, the preserving wealth stage, and you're living off of income. So even there, I think even though the volatility scares you and you look at your portfolio over the last 12 months and you see some red in it, there's also some ray of hope. You know, if you're preservation or you're living off your income for a long, long time, we— you haven't been able to get much income in the fixed income bucket because rates were so low. Now rates are adjusting. And here in our shop, we're starting to see bonds, quality bonds creep up into that 6% range, which is a range people can live off of. So we're going to talk about a bond strategy here at the end of the call. But I think for these preservation investors or income investors, you should be smiling because those income numbers are going up right along with rates.
That's a perfect segue to topic 2, Nolan. So topic 2, again, we're calling the enhanced bond portfolio. As Nolan alluded to, if you need income, a wonderful opportunity is developing. We've got rates going higher. That means bond prices are falling. And that's an opportunity for you if you're looking for income investments. As Nolan mentioned, rates have been very low for a long time. It's been hard to find bonds or any other income investments that are going to deliver you the type of income that you need in retirement. So finally, we've have an opportunity here, specifically in investment-grade bonds. That's the more high-quality corporate bonds. We're seeing a lot of bonds with low coupons starting to trade substantially below par. Nolan, can you tell us a little bit more about what we're seeing in the bond market?
Yeah, we're seeing a lot of opportunities develop And in my career, this is probably the most interesting time I've seen in the bond market. So as the viewers will, I'll remind them, think of a seesaw with interest rates on one side and bond prices on the other. And as bond, as interest rates go up, bond prices come down and vice versa. As rates have gone up, bond prices have come down a little bit and they'll generally stay down until maturity. And that creates an opportunity over the last several years, especially after COVID, when the Fed used their emergency powers to get rates back down to zero. A lot of these companies, especially these investment-grade companies, were able to issue bonds at unbelievably low coupons. We're seeing some bond coupons in the 2, 2.5% range. Companies were smart to issue bonds to investors and, uh, be able to take in money at 2, 2.5, 3%. In a lot of cases, these bonds don't mature for 7, 8, 9, 10 years. So the companies get to use that money that they gather cheaply. But if you're some other investor who's purchased these bonds, you're sitting on bonds, in a lot of cases, these bonds are priced at, you know, 80 cents on the dollar, at least the one for Boeing, we're going to talk about 80 cents on the dollar, you'll be fine. I mean, as long as the company doesn't file for bankruptcy, and again, these are investment-grade credits, very, very, very low default rate. So in a bond ladder, I wouldn't anticipate that. But you will be sitting on a bond with price at $0.80 on the dollar. If you need to sell it, that's what you'll get. But if you're holding to maturity, it'll mature at $0.100 on the dollar, its face value. You'll collect your income, but it creates an opportunity for investors today. So for example, we're going to talk about this bond. Are we ready to talk about it now? Or—
yeah, just talk us a little bit through this, this new novel strategy that we're looking at. And then you can talk about this, this example bond we've got.
Yeah, so theoretically, here's what we want to do. I'm an investor and I want a rate of return that's locked in and a steady rate of return. So imagine I'm going to buy a bond that matures at the end at $10,000. The bond has a coupon or an interest payment of 3%. So if I bought that bond at its value that it was issued at, $1,000 a bond, I'm getting 3% on my money from now until maturity. However, if rates go up and then in the secondary market, that bond today is trading at $0.80 on the dollar, as it is in the case with Boeing, I have a, an interesting strategy that I can partake in, and that is I can buy this $10,000 bond today for $8,000. I can lock in that 3% coupon from now until maturity. But that gives me an opportunity here with the other $2,000 in my example, and I can actually take the extra $2,000 and go buy something with upside potential, like a stock. So in this case, we took a bond from Boeing, who's an investment-grade credit. I think most people know Boeing. They ran into some hard times a few years ago with their 787 Dreamliner. but they're just getting back to production and getting back on their feet. Still very, very high quality and investment grade. But I can buy this $10,000 bond that matures in 2034. I can pay $8,000 for the bond. The coupon payment on it is over 3%. So I have a guaranteed stream of return from now until maturity. But I also have some extra capital here because I only paid $8,000 for this $10,000 bond. I actually can now take that $2,000 and actually go buy me some stock that I think is cheap and that will appreciate over time. And what that does is if I'm wrong, if I buy some stock that happens to go bankrupt, I'm still locked in and I get my guaranteed return from the bond and the income stream. However, if I'm right on the $2,000, then that's going to enhance my return. My return to maturity is going to be well in excess of what I would get on the bond. It would be the bond return plus the stock return, which I'm buying when the markets are down. And so that's an overview of the strategy.
So, Nolan, we've got bonds falling, we've got rates going higher. So in that environment, we're looking to make some chicken salad out of chicken, you know what. So I love the strategy here. We'd love to talk to you more about it. So definitely get in touch with us with using the data down below and we'd love to talk to you more about the strategy. Nolan, we're going to be moving into the college football season in earnest this weekend and then NFL from one week from today. So Very exciting. Thank you for being with us. Thanks to our listeners, and we'll see you again next week.
