Are Trump's new policies enough to keep the market afloat?

Foreign.

Welcome to Trader Talk, where we serve up the latest buzz from Wall street, helping you to keep your portfolio sizzling without getting burned. Look, I'm your host, Kenny Polkari, broadcasting live from the iconic New York Stock Exchange, the heartbeat of capitalism. After decades here as an institutional stockbroker, it is incredible for me to be back home. This place still gives me a thrill, and it's and while it has evolved and modernized over the years, the New York Stock Exchange remains the cornerstone of capitalism, entrepreneurship, and above all, freedom. It's woven into the very fabric of our nation's history. Today, we've got a great conversation set up. This one is all about the earnings season and what it's telling us vis a vis the outlook for individual names as well as the outlook for the US Economy. There's a lot to unpack and as always, there's never a dull moment, so let's get right to it. Today's tips Number one Watch the momentum players. They capitalize on market trends by buying rising assets and selling declining assets, leveraging both psychology and demand. They thrive in environments with sharp, sustained price movements, focusing on assets with significant trends and high trading volumes for for quick transactions, tools like moving averages, rsi, macd and volume analysis. And they use strict stop loss orders to manage risks and secure profits. 2. Pay attention to the earnings picture. Why? Because beyond the actual report, the insight into the broader economic trends such as future business activity in the labor markets, inflation and profitability or not insight into new and upcoming products. In the end, they serve as a real time economic pulse on the economy. 3. Listen to what the C Suite is telling you during earnings season. The C Suite commentary reveals key insights into revenue margins, hiring trends and spending plans. It also gives you industry dynamics, supply chains and regional performance. It also talks about geopolitical risks and economic uncertainties if it's a multinational company. In the end, the C Suite perspective helps assess company performance and broader market conditions. Since Trump's return to the White House just a couple of weeks ago, the financial markets have been buzzing with excitement and volatility. A series of bold policy announcements has fueled investor optimism and speculation, resulting in sharp movements across various sectors. One of the most impactful developments is Trump's proposed $100 billion Stargate AI infrastructure project. This has driven substantial gains in technology stocks, particularly those involved in artificial intelligence, with companies like Oracle and Nvidia benefiting from heightened investor confidence. Bitcoin and other cryptocurrencies have also surged to record highs following Trump's pro crypto executive order, signaling Increased support for digital assets under his administration. Earnings season has added another layer of intrigue shaping the market's broader moves. Early reports from major companies, including financials and technology giants, have delivered a mix of optimism and caution. Strong results from big banks, buoyed by rising interest income, have boosted market confidence. However, forward guidance has revealed some headwinds and including concerns about inflation, labor costs and geopolitical risks. The market's excitement has been tempered by uncertainty around Trump's tariff policies, particularly proposals targeting Canada and Mexico. While some sectors view the tariffs as a negotiation tool, others worry about disruptions to supply chains and corporate margins, creating mixed reactions. The S&P 500 and the Dow Jones industrial Average have rallied to record highs, fueled by strong earnings, tech momentum and optimism surrounding Trump's pro growth agenda. Still, pockets of caution remain as investors brace for potential surprises from central banks and further policy announcements. In this dynamic environment, earnings reports and Trump's economic vision are setting the stage for the broader market right, offering both opportunities and risks as investors navigate an exciting, yet fast evolving landscape. And now I'd like to introduce my next guest. Stephanie Link is the chief investment strategist and head of investment solutions and equity portfolio manager at Hightower Advisors, a national wealth management firm. In her role, she manages multiple equity strategies and collaborates with Hightower's advisory businesses and their clients to navigate the economy and the markets. As of January, her division at HighTower oversees $5.4 billion in assets under management. She earned a Bachelor of Science in Finance from Boston College. My hometown. I love to say it. I went to bu. She went to Boston College. Okay. She's a CNBC contributor, frequently appearing across a range of their programming. Please join me in welcoming Stephanie to the show. Stephanie, it is such a pleasure that you're joining me here at the New York Stock Exchange, where I spent 40 years of my life.

I've never been here. This is so exciting. It's great to be with you, too.

This is great up here in the bird's nest as what they call it. Now, I know you're overlooking the floor of the exchange. Very different from maybe what it was, but it is what it is. Yeah. So, look, there's a lot going on, so I want to talk to you about. You know, first, let's Talk broadly about 2025 and your sense of where we're going, what sectors maybe, you know, are going to. Are going to outperform and what sectors might perform this year.

Sure. I think that this year we're going to continue to see strong growth above trend, but maybe not as strong as the last two years. The last two years we saw 3.4% growth and then last year we saw about 3%. So I think maybe two, two and a half.

Right.

Maybe more. And it all has to do with, we know Trump and he has the pro growth strategies. However, it's much less fiscal that is going to come our way. Right, right. You know how much fiscal policies that we put in place over the last six years, it was equivalent to 60% of US GDP. We're not going to get that.

Yeah, yeah, right.

So, but we're not going to fall off a cliff either because of again, Trump's policies of, you know, lower taxes, lower regulation. And still there's a lot of momentum in the economy right now. So you kind of add it all up and I think the consumer is going to stay strong. Jobs, wages are definitely in their favor on the manufacturing side. We can talk about this in a little bit. But the whole AI data center grid, that is a big part of it too. So those two components I think will lead to better growth and to 2.5% GDP translates into mid single digit revenues. If you get a little margin expansion, they get double digit earnings. That's pretty good. All right, so I feel good about earnings, but not, I don't think we're going to see a market that's up another 20, 23%. Right.

I think if we're up 10 or 12%, which is still great, people are going to say it's a disaster compared to what they've had for the last two years. Right.

But, but the long term average, you know, 100% is 7.7%.

100%.

Right.

So do me a favor just so the, so the, so the, the listeners understand two or two and a half percent GDP is historically normal. Is that the range that, that we should be looking at?

Well, the normal is about one and a half percent.

Okay, so then a two, two and a half is still well above normal.

Still pretty good, right? Still pretty good.

Very good.

Just not the threes that we were seeing.

Right.

Again, you know, it depends on what you're excited about. Are you excited about, you know, more fiscal policy or pro growth initiatives? And they're both going to lead to better growth above trend, but maybe just not as much as we have.

Right. So the pro growth initiatives I would much prefer to see versus the fiscal. Right, of course, because we've seen that, we understand what that does. So here's my next question. Given that scenario, where, where do you see The Fed and where do you see policy?

Yeah, well, so I think that the Fed, I mean right now, what, the market's pricing at about one to two cuts from here.

Right. Which, which I don't think is going to happen. I'm in the no cut camp.

Well, I know you are, I know you are and I love this, this discussion, this debate. I one thing I think that is really important to look at is when the Fed likes. We know core PCE, right?

Yeah.

If you look at the three month and the six month annualized, it's running at about 2.3.

Okay. But if you look at the three month and six months CPC annualized, it's like 3.4.

I know, I know, I appreciate that. I understand there's a lot of moving parts in terms of what you want to look at for inflation. But the last reading with inflation we actually did start to see rents coming down, which has been the real stickler. Right. And so if you want to look at the CPI, I totally understand. Guess what Kenny, we're down to 3.3 in the CPI and the peak was 9.

Right. No, no, I get that, I get that.

Right.

But just so the listener understands as well, the three really key inflation numbers. You look at a PPI at the producer level, right? So you watch what's happening at the producer level, what they're paying, are they paying higher prices and because ultimately that comes down to you and me at the consumer level. Then there's the cpi, but then there's the PC which comes out at the end of the month and that's the Fed's favorite inflation gauge. Now why do they favor that one over the over cpi?

Well, I think it's actually less volatile than the CPI and the piece and it's the components, what's more, what's weighted heavier than not. And that's really, at the end of the day why I talk about rents and why we talk about owners equivalent rents is that it is a much bigger weighting in the, in the core PCE.

Okay, so then let's talk about PMIs. Right? Services PMI and manufacturing PMI. Right. Which is the purchasers managers index. Right. Is what that means. And so we're a 75% services economy. So I always look at the services PMI as also being another key indicator of kind of the health of the economy. And what's happening with inflation? Because as that number 50 is a neutral line above 50 year expansion zone, below 50 year contraction zone. Services PMI has been well into the mid-50s for two years and continues to stay there, which to me is great because it's a healthy economy. Right. The manufacturing PMI had been in contractionary territory, but now it's starting to make its way back. I think it's, I think, I actually think it's flat now. It's neutral.

Yeah, it's 49.9, but it's up 300 basis points from the lows, which suggests you what nice momentum building. And it goes right back to what I just mentioned in terms of AI, data center infrastructure, build on shoring, reshoring, people leaving China, coming here and building around the, around the world, but mainly here in the States as well. We have all kinds of initiatives for, and incentives for these companies to continue to build Stargate from last week, 100%, which I love. Right. And it takes a long time, Kenny, you know this. It takes 2, 3, 4 years to build anything in manufacturing, semiconductors, any of that kind of thing.

Especially semiconductors take a long time. The place they're building in Ohio is actually not due to come online until 2026.

There is a long Runway of projects and that's what I think is starting to happen. And when you think about the industrial economy is really only about 10% of GDP, there's a multiplier effect. For every one job that's created in the manufacturing economy, seven other jobs are created around it. So there is this multiplier. It does help growth. And I think when, at least for me, in my years of doing this, you buy industrial stocks and that sector, when the PMIs have bottomed and they're starting to go higher, we don't have to wait until it gets into the 50s.

No, no. Right. So manufacturing, PMI, I think it bottomed out at 46 and change, wasn't it?

Yes.

Now we're almost at 50.

Right.

So the trend is up for sure.

And that's good. But to your point exactly, we have to root for the consumer, we have to root for services. Growth continuing, it's slowing a little bit, but it's still very healthy.

It's still very health. The mid-50s is still very healthy, very helpful. So. Okay, so now let's get back then to the Fed conversation. Where are you in terms of cuts or no cuts?

So I think, I mean, I hate to be consensus, you know, that I do think it is like one or two. I lean more towards two because I think we are going to make more progress on inflation. I think the labor market stays fine. Yeah, fine. And that's good. We've already gotten to the area that they want it to be at. But I think that inflation is going to come down, and I'm not convinced exactly that oil prices are going to come down under his, under Trump's policies. However, that is his game plan to get that down and you get that down. And that solves a lot of problems.

A lot of problems, because it affects everything. Transportation, manufacturing. Everything. Everything. Everything.

Exactly.

So if the price of oil comes down, then you can see broad. You'll actually see prices come down.

Yes. And we're close.

No, no, we are close. We are close. But, you know, it's so funny because I'm in, I'm in the opposite camp. I want to see that happen.

Yes.

But my fear is that when you look at the 3 and 6, when CPI is, you know, it's ticking higher on an annualized basis. And my fear is that you're just going to get, you're going to get inflation starting to tick up again. And I think that's going to hold the Fed in place.

And it, and by the way, one or two more cuts is not going to be a big deal. Agreed or no cuts. It's not going to be a big deal.

Agreed.

But what I root for, what you root for is if we are seeing a little higher inflation, it's because we're growing a little bit, and I'd much rather have faster than average growth, a little bit more inflation because corporate profits can go much higher in that environment.

Understood. But, but then that's how the story has to be sold, right?

Of course.

That we're getting a little bit more inflation because the economy's healthy and everyone's. And everyone's participating.

That's right. That's exactly right.

That, I think, is how the story has to be told. And so let's just see if that, let's just see if that happens, because I think that's going to be, that's going to be the rub.

I think this year the surprise is going to be that growth does come in above trend. Earnings are going to be double digits. But in the earnings picture I mentioned it earlier, I think margins go a lot higher. We're going to see, if I'm right, record margins this year across, across all.

Sectors or in some specific sector within.

The s and P500 for sure. But those companies that have pricing power, those companies that are lowering cost, all these, you know, the restructurings that we're seeing, US companies are so agile, right? They are, they, they, they. If they see a slowdown, if they see an issue. They're quick to cut costs and restructure and be more productive. And I think the productivity story is really underappreciated. And so I think as the road, you add it all up and I think that's going to be the surprise of the year, that margins are better than people think.

Yeah. I hope you're right. Because I love it when the market goes higher. We all do for clients. I love it when the market's like, I'm just, I'm just in that camp that I'm struggling with a little bit. I think the market's going to do fine this year.

Yeah.

But I'm just struggling. And by the way, rates at four and a quarter, four and a half, where they are today, in my mind, are not restrictive. They're very much. Well within the normal range.

Yeah.

The band of four to six for sure. Right. But the problem is there's a whole generation of, I want to say kids, because they're younger than we are right now, but this whole generation that came into this business in 2007 and 8 when rates went to zero and then the Fed kept them there for 15 years.

I know.

And so they spent 15 years thinking, this is normal.

I know.

When it really isn't. No, listen. 1979, when I was getting out, when I was just going into college and rates went to 20% because they prematurely cut rates and inflation rated its ugly head again. You remember that? And the economy went into a two year, very difficult recession.

But that's why.

But that wasn't normal either.

Right, I was gonna say. I was supposed to say that.

Right. That wasn't normal either. And so this four to six band, you know, we're at the lower end of the band. So in my mind, I don't view it as restrictive when they keep saying, oh, rates are so. Austan Goolsbee rates are so restrictive. I'm scratching my head going, I don't see it.

Not with this kind of growth, not with this above trend growth. But I mean, I will say that rates, if they come down and which is kind of interesting that we're talking about rates just because in the last week, two weeks, we've gone from 5% on the 10 year almost to 4.

I think it's 4 6.

46 could be. I just didn't look this morning. But you've made move, you've made progress. Everybody was nervous, oh my God, five. Then we're gonna go five and a half. And then all the technicians came out of the woodworks and it Was nuts. You just get rates down a little bit lower. Guess what's gonna happen? You're gonna start to see housing do better 100%. And the housing market is so important. Talk about a multiplier effect, right? You buy a house, you have to buy stuff inside the house, outside the house, a car to get from the house to wherever you're going. Like, it's huge. So we do root for housing to do better now. I don't think we're going to see a boom until you get the 30 year fix and something like a five.

Right.

Because we know that most people right now that own a home have a 3% mortgage.

Hold that thought for a minute. We're going to be right back. Okay, so let's just pick that up where we left off about mortgage rates. Because mortgage rates currently are six and three quarters.

Yeah, yeah, they were. Well, they hit seven over seven a couple weeks ago.

They come in a little bit.

Come in a little bit. I think we needed under five really to see activity. But you know what's interesting? We got new home sales today that beat expectations. Existing home sales last week that beat expectations. The expectations are really, really low.

Right.

And in my mind, the structural situation in housing has not changed. No matter where interest rates are. It's the supply demand. We're 5 million homes short of homes in this country. We have 14 now on 15 consecutive years of the home builders under producing. They don't want to buy land. This has been very inflationary. And you have 5 million millennials that are first home buyers. So that's why I think longer term.

Okay, so aren't the homebuilders then incentivized to build, you know, these entry level houses instead of building the big mansions at, you know, $5 million? Why are they not incentivized to build houses that are affordable? You know, 500,000, 700,000 somewhere in that range.

And you see 80, 20 rule, right? Because you know, you know, and it's also better pricing power for them.

I. But we're missing this whole, this whole demographic of people that can't buy a house. Listen, come to West Palm Beach. They are building like crazy in West Palm Beach. It's absolutely nuts. It's going to look like Miami pretty soon because they're just building high rise after high rise. It's truly unbelievable.

Multifamily is much more saturated than single home family homes. And I think that that's going to continue. You talk to home builders. They'd rather buy back stock than buy land. It's crazy what they'd rather do at this point in time. They don't want to flood the market. They know it's a cyclical business.

Right.

They want pricing power. It's killed them over the last year, year and a half that they've had to put out incentives and every one of the companies have lowered margin numbers. I think that's going to eventually start to stabilize and I think it's the demand side that's going to come back, especially if rates come down 100%.

I just for rates come down to 5%. That's a big move considering where they have to be, where they are now.

Absolutely right.

I hope you're right.

Yeah. I'm not saying it's going to happen, but I do think that's where for us to really see a better environment for housing. You need rates to come down, but I think you will because that demand is definitely there. People don't want to pay thousands of dollars for to rent.

I hear you. Yeah, 100%. Listen, we've run out of time, but I want to have another conversation. I want to do this with you again, you know, maybe three or four months down the line just to kind of see what, where we are and what's happened and how it's all panned out.

Yes, absolutely. Hopefully I'm right. But I don't get if either of us are right. I'm rooting for both of us.

Well, one of us is going to be right. It's always a pleasure. Thank you very much for joining.

Thanks so much for having me.

Always a pleasure. Before we wrap, let's circle back to those tips we covered at the top. One, watch the Momentum drivers names and ETFs like the MTUM, which is the Momentum ETF, can single handedly set the pace. So if you're long, these stocks know that they can carry you higher but also leave you exposed if the sentiment shifts. Pay attention to the earnings picture. And three, listen to what the C suite is telling you. Okay, so now it's time for dinner and today we're going to serve up a champagne chicken. Right? This is a classic elegant dish and it's perfect for celebrating any occasion. It's simple to prepare and it's beautifully presented and it is sure to impress anyone that's coming over for dinner. Now for this you need, say you're going to serve four people. You need the four skinless chicken breasts that you're going to pound thin evenly. You need a cup of all purpose flour for dredging, you need salt you need black pepper. You need three quarters of a stick of unsalted butter. You need olive oil. You need one and a half cups of champagne. You need three quarter cup of heavy cream. You can use light cream, but the heavy cream is better. You need fresh Italian parsley, chopped. You need a half a teaspoon of rosemary powder. Now, you want to start by seasoning the flour with the salt and the pepper. Then dredge the pounded chicken breast in the seasoned flour, shaking off any of the excess flour. Then you're going to set it aside. Now, you're going to get ready to saute the chicken. In a large saute pan. You're going to heat up on medium heat. You're going to melt the butter with some olive oil until it's sizzling but not burning. Add the chicken breast and cook for four to five minutes on one side, then flip them over. And now you're going to add the champagne and let it simmer there for about 10 minutes. Right. Next, you're going to stir in the heavy cream, the chopped parsley and the rosemary powder, allowing the mixture to simmer gently until the sauce thickens up a bit. Should take you no more than five to seven minutes. When it's done, you want to serve this on a plate with a big green mixed salad and a nice glass of wine. You don't need any more than that. It is a perfect dish and it will work well with anyone you have for dinner. Bon appetito.