In this weekly Jarvis Update, Left Brain’s research director Brian Dress, CFA, and CIO/CEO Nolan Langford discuss whether investors should move from defensive to offensive positioning. They start with a market recap showing broad gains – S&P 500 up 1.6%, Nasdaq up 2.9%, Russell 2000 up 2.3% – and a rise in the 10‑year Treasury above 3.6%, indicating renewed risk appetite. The hosts frame the discussion around two themes: (1) “Markets climb a wall of worry,” acknowledging lingering concerns such as the regional‑bank fallout, recession signals, and the debt‑ceiling standoff, while emphasizing that markets have historically risen despite such headlines; (2) “Let’s talk about some good news,” highlighting mixed but generally solid retail earnings (Target and Walmart outperforming, Home Depot lagging) and a strong mega‑cap tech rally (Netflix, Meta, Microsoft, Nvidia). Langford advises investors to tune out daily news, focus on the 2‑5‑year horizon, and consider opportunities in regional‑bank stocks and high‑yield investment‑grade bonds (7‑10% yields). He also explains why growth stocks tend to benefit when rates fall, noting that lower rates raise the present value of future earnings. The conversation concludes with a cautious optimism about the summer outlook, suggesting that both equities and high‑quality long‑duration bonds could remain attractive, and questioning the relevance of the “sell in May” adage for 2023.
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Has it come time for investors to switch from defense to offense? We answer that question and much more in this week's Jarvis Update. I'm your host, Brian Druss, director of research here at Left Brain, joined as always by our chief investment officer and CEO, Nolan Langford. Nolan, welcome to the program.
Thank you, Brian. It's good to be here. I was up late watching that Heat game. And happy to see my Heat pull it out. So excited to be here talking stocks and b-ball with the, with the listeners, the viewers.
Hey, they won round one, but it's a long fight, so we'll see how it goes. Let's get started with a quick preview. So markets were strong this week as we are starting to finish up with earnings season. We've got two topics to discuss as we usually do in this week's episode. The first is the market climbs a wall of worry, and the second is let's talk about some good news. Before we get started, we're going to ask you to like and share the video if you find it useful. We do appreciate it. That helps other investors find it. And also hit the bell for notifications and subscribe. That way, you know, each time we're out with the next video and we're out every other week with these videos, a couple of announcements. First of all, we do have a new website. We've relaunched our website, leftbrainwm.com. We encourage everyone to check it out. A lot of excellent information on there and a brand new look. So we're proud of it and happy that you're able to see it now. We'd love any feedback. Leave it in the comments and we would love to interact with you. We've also got the Jarvis newsletter, monthly newsletter now, and we're going to be out next week with the next edition. We also produce this show for you, the everyday investor, whether you've got an IRA or 401(k), if you manage your own money, you work with an advisor, we'd love to be a resource for you. If you'd like a second opinion on your portfolio as we move toward a market recovery here in 2023, definitely engage with us. Take a, take a moment and give us a call on the number at the bottom of the screen. We'd love to talk to you and see if we can help. And if you're an institutional investor, we've got something for you as well. That's our research service, Left Brain Investment Research. That's 6 to 8 high-quality stock and bond reports each month, as well as The Chosen. That's our favorite stock and favorite bond opportunity each quarter. So take a look at that if you're interested in learning a little bit about more about our research. Let's jump right into the market recap. The S&P 500 was up 1.6% this week. The leader was the Nasdaq, the tech-heavy Nasdaq, up 2.9%. And then the small-cap Russell 2000 was up 2.3%. So we saw up across the board. Markets are starting to perform over the last couple of weeks, which is really nice to see after a tough couple of years. Treasury rates are actually leaking back higher, and that's because investors do seem to be moving back toward risky assets. The 10-year Treasury is back above 3.6% this week. It had been below 3.3% a couple of weeks ago. So a pretty sizable move there. Nolan, how do you interpret this week's action in the markets?
More buyers than sellers, at least for stocks and for bonds, at least the long-term Treasuries, more sellers and buyers. It's pretty much all we can say. Of course, we know there's a lot of things happening in the foreground, in the background. That limit issue certainly is, um, still unresolved at this time. But I think economically, obviously investors are becoming more comfortable with this economic situation as it relates to recession. So that's— we're cheering that. Obviously we're not fearing the worst. Something not as bad as the worst. Some people call it soft landing. Those are all good things.
And Nolan seems to be swinging in the favor of the optimist, Nolan, which we love to see. Let's jump right into our topics. So topic 1, the markets climb a wall of worry. This is an old, an old saying we've heard over the years that the markets do climb a wall of worry. No matter what time period you're in, you could probably find a negative case for markets. But at the same time, US markets have moved higher and higher over the last 100 years. That's one constant we seem to be able to count on in this world. A few things are going on that are negative, Nolan. I certainly understand why some people might be pessimistic right now. Of course, the regional banking crisis continues to be with us, hanging over investors' heads. Everywhere you turn, you seem to be hearing about how we're right on the cusp of a recession. Nolan, as I told you, everything points to recession other than the data. So that's interesting to note. And as you mentioned earlier here, the worry of the day does seem to be the debt ceiling that's hanging over the head of investors like a sword of Damocles. As we have seen over the years, these things usually do work themselves out. Despite all this, markets do seem buoyant this week, which is really interesting to see. We have a number of bad news items and the markets continue to move higher. Making strong progress. Nolan, how do you think investors should interpret the economic worries that are around in the landscape juxtaposed against the market strength?
I think investors would be wise to just shut off the news, all market news, whatever. Just go do something else. Leave the money to the professionals. Pay us to worry. You know, I think all of that that's in the, the news headlines You know, that has to be priced in the markets. We do have the big risk of the debt ceiling. I would expect if we don't get a deal done in time, the market may go through some short-term pain. I think it's going to be very quick, though, and I think it'll be an unbelievable buying opportunity. I think the number that I heard was something like we've had 106 of these sort of deadlines for debt limit increases. And 98 times it's gone through. So I wouldn't put too much focus on that. You're better off focusing on the intermediate term, the next 2 to 5 years. And there's so much that's happening in the markets to set us up to position ourselves well. Earlier you mentioned the regional banking crisis. And as you know, as an investment team, we've been rolling up our sleeves, getting busy. Regional banks historically has been not that exciting of a place to, to invest. But with the index being down 32% year to date, there's some opportunities there, not only in stock to pay dividend, but also bonds. These are investment-grade bonds that are now trading at very juicy yields, 7 to 10% in some cases. So a lot to do, and you can make an investment case a lot of places to put money these days.
I agree, Nolan. You know, we don't bring up these events to, to make anybody scared or, you know, make them pessimistic. We really want to just point out the fact that markets tend to seem to be doing quite well in spite of some of the negative headlines that you see. And I think that's an important lesson that investors need to realize is, uh, you really need to decouple your investments from the news flow from day to day. So that's something we want to just have everyone keep in mind. Let's move on to topic 2. So topic 2, we're calling Let's Talk About Some Good News. So it does seem like, no, in the last couple of years all we've been talking about is bad news in the markets. You Earnings are winding down. So it's been a fairly good earnings season. You know, a couple of mixed reports here and there, but for the most part, pretty good. This week we heard from a number of retailers. First of all, Home Depot, HD, their report wasn't really very good. Of course, they're tied a lot to housing and housing hasn't been stellar the last few months. Did hear some pretty positive news out of Target, or at least better than what they've been saying the last few quarters. And then this morning we heard from Walmart, WMT, and they had a really pretty strong report. So, you know, the consumer seems to be holding, hanging in there pretty decently despite what you might be hearing. Nolan, do you have any thoughts about the consumer and kind of what we've been hearing out of the retail sector this week?
You know, I think the consumer is challenged. The Target report you mentioned was better than feared. You have to take Walmart with a grain of salt. You'd imagine if they're doing strong, that's not great for the economy as people trade down. And, you know, Home Depot is more of a bellwether. I would say it's mixed. We know housing's going to struggle, but, um, you know, credit card— if you look at interest rates at 20% or something, and, uh, it looks like all of those PPP loans and cash that the government rained down on Americans is really starting to dwindle. And we know that they're starting to be layoffs. And so anytime you hear things like recession and layoffs You imagine that the consumer is going to do a lot of belt tightening on everything except travel. And, um, I would expect that to continue. And the consumer represents 70% of the economy. That is something to watch. But there's another 30% of the economy that I think is going to do very well. I think the consumer will probably hold itself up, but there's certainly some opportunities here as the economy weakens.
Okay, I think that's definitely a good analysis of where the consumer sits. Like you said, sort of challenged, but, you know, not as bad as some might fear. I want to just shift gears slightly, Nolan, and mega-cap tech stocks have been absolutely on a tear this year. Some of these are up over 100% year to date, which is pretty incredible given how large these companies are. I'm going to throw a few on the screen and look at their charts, and you guys could take a look at what's going on. We've got Netflix, NFLX, We've got Meta, that's the old Facebook, META. We've got Microsoft, one of the biggest stocks out there, MSFT. And then one of our favorites over the years, Nvidia, NVDA. These stocks have been absolutely strong, strong like bull. Nolan, do you expect the rally to broaden out as the rest of the year unfolds here?
The answer is yes. The rally has been fairly thin to this point. You mentioned those household names, the big cap tech. They've really been driving the rally for 5 months. Underneath the surface, it hasn't been near as broad. I would expect that to change as the year progresses. I think tech will probably continue to lead for a couple reasons hopefully we'll talk about in the coming section later in this broadcast. Tech has been leading, but it's been mainly big-cap tech, and it's not clear if it's just a rotation away from banking, a rotation away from things that are more cyclically exposed negatively, or if it's just a, a rotation where winners become losers and vice versa based off of large-cap tech space being, been left behind the last couple of years. But I do think the rally continues, and I do think it broadens.
Okay, Nolan, so that there isn't clearly a divergence between these mega-cap stocks and pretty much everything else. Do you think that's created an opportunity? Where are you seeing some of the best opportunities developing?
So some of those big-cap techs that you talked about, you know, we talk about them weekly in the office. Some of them are still very attractive and cheap. I won't throw out any names, but the ones you mentioned, I still think has a ways to go. Now, they're all not cheap. NVIDIA is certainly not cheap, but the other ones you can make a case are still relatively fairly attractive given where they are in their earning cycle and what the valuations are, especially compared to where the valuations were a couple of years ago. And if you thought that one of the things that was holding down prices were interest rates on the move on the way up, now interest rates are flattening, if not coming down some. So you would expect the valuation to normalize upward. And that's what you've seen this year. It hasn't been necessarily earnings growth, has been the valuation readjusting. And I expect for small and mid-caps that haven't joined the party yet to really join the party one way or the other, either they're going to get pushed or pulled into the rally, in my opinion.
Can you talk a little bit more about why growth stocks tend to do well when rates do start to fall?
So generally growth stocks are going to get their, their biggest uplift in the future. So they generally are spending a lot of money, some, in some cases if they're early in their life, 100% of revenues in growing their business. So staffing up their technology staff, SG&A, And they're, you know, if you're going to revenues at 60% or 70% a year, you really want to get all the customers you can now, and you worry about profits later. So growth stocks are generally synonymous with the profits in the future. And so we have to discount those future value to present value. You use interest rates to do that. And it's just sort of that seesaw effect. Interest rates up, valuation down, very similar to what you see with bonds.
Glad you mentioned that, Nolan. We're going to close it out here, but just, just for the viewers, we do definitely see interest rates kind of moving down in a general basis. And that means that long duration assets like growth stocks are going to do probably well in that environment. We do expect bonds to do well in that environment as well. So if you're looking at what's the best way to play this rally, what's the best way to play rates coming down, definitely get in touch with us. We'd love to have a conversation and see how we can help with that. Nolan, any final words as we close out the, the video this week?
We have that moniker in the market, sell in May and go away. I'm not so sure it's going to fit this year, and we're looking for a very interesting summer. Some of these clouds start to dissipate, starting with the debt ceiling. But I think as we go through the course of the, uh, the summer and the fall, people will start feeling much better. Unfortunately, prices will be much higher, not only on stocks but also high-quality corporate long-term bonds as well. There's a lot to like in the markets these days.
Thank you, Nolan. Thank you to the viewers for being with us, and we'll see you again next time. Go Heat!
