Matt Nelson  0:00  
Tariffs, inflation, political upheaval. What should we expect for 2025 today I have our Chief Investment scientist with us to help separate facts from feelings.

All right, welcome back to the show. Saying there's a lot going on at 2025 is kind of an understatement. And so today, today, I wanted to have our Chief Investment scientist join us, Matt Finley, to help kind of break some of this down. Now, making sense of it all is a lot of challenge, but we need to just separate how we're feeling politically about what might be happening, happening in the investment markets today, I hope we can get to the bottom of it. Hey, I'm Matt Nelson. Welcome back to the show. My team and I at perspective six group have been helping people retire for over 25 years. We put up this channel and started a show to help med tech professionals make smarter decisions with their money. So today, I have my partner on the show to help us kind of break down what's going on in 2025 Matt, I referred to you as our Chief Investment scientist for a reason. I think that's known to your background, as we've talked about in the past. And you know, this is a this is a topic where we really do need to separate how we're feeling about what's actually happening, and it's nice to say, and we can all kind of try to be in our head about about investments, but there are some real numbers we can put behind things. So that's what we're going to talk about today. You wrote an article, actually, that was posted around January, discussing kind of an outlook for 2025 I think there's some great information in there. Fact, you started out the article, and you know, we got to be careful here, not not that we're trying to be prediction scientists all the time, but you did happen to say in the article that, from a technical perspective, we probably could expect a pullback in the stock market early in the year that is playing out here in the February time frame. What we're going to talk about today is an article you just put out for our spring review season, referencing, really, what's going on now. And you know, since you first wrote that article in January, there's been a ton of news that have come out. It's like, it's like daily things are just popping up, and you're, you're paying the team on, like, what's going on there, tariffs, just like everyday announcements, all kinds of crazy stuff. So let's just kind of get into it, you know, why don't? Why don't you just give us, you know, the brief, a brief overview of what, what you think the economic outlook is now, at this point going forward? Yeah, absolutely.

Matthew Finley  2:44  
Thanks for having me on again. This is always a fun thing to do. You know, you said Chief Investment scientist. I think what that brings to the table for me is as much as possible, is look at the big picture, the facts. Dial it down to how it impacts what we do with our clients, and try to eliminate the emotions and the stress and just look at what's going on. So hopefully that comes out here a little bit today, as I stated in January in that article you referenced, as well as the one that we posted today for our spring reviews, volatility is here. We knew it was going to be here, just on the fact of Trump inauguration, being elected, and then getting going, it was going to be a big upheaval. We have that upheaval lots of changes. Markets don't like changes. Maybe that's not the right thing to say. Markets will adjust to changes very quickly. And I think that's what we're seeing over the last three weeks with tariffs and cuts in federal government and so forth. I know we'll touch on that stuff here too.

Matt Nelson  3:47  
Yes, no, that's good. Yeah, markets, markets can handle change. They just need to know what the answer is, so they could plan for it, basically, right? So you know, just as a quick review how, how were we positioned last year, and how has that changed? Kind of early on?

Matthew Finley  4:03  
Yeah. So we've been what we coined as a full bowl position since the fall of 2022 recognizing that economic data was pointing to a good growth cycle as of the end of last year, beginning of this year, we pulled back on that a little bit, so we're back about 10% of our equity holding across the board, and for a couple reasons, we thought that the volatility out there was not necessarily worth the pain to our clients to have that full bowl approach. But we also believe that we're probably in the early stages of a bond bull market, and so the value of return of stocks over bonds for 2025 might not be a big difference, and yet we can reduce volatility. Yeah,

Matt Nelson  4:50  
that's a, you know, that's a key insight, because there has been some time here recently where bonds just weren't helping the portfolio at all. You. And so you had to make much more of a of a, I don't like to use the word, the word bet, when we're talking about long term investment portfolios, but let's just say, you know, a stand strategic decision. There you go. Strategic decision exactly that. You know, if you want to return in the portfolio, you had to lean on stocks quite a bit. And I like the way you framed that, that there comes points in the economic cycle that while stocks may still outperform bonds, the differential gets a little a little closer together, so that risk maybe isn't as worth it, especially when it's less predictable. So it's working out well for us, and I always want to, like, you know, make sure I caveat for our listeners that we aren't in here making trades on a constant daily basis and trying to predict markets. This is, this is back to how I just teed this up. You know, more of a data scientist approach. Hey, do we need to put our foot a little bit more on the gas pedal? Take it a little bit off the gas pedal? I believe that's a phrase I've, I've picked up from you over the years. So, all right, you know, as we record this, it's early March, and things have happened here very recently. So just what are they? What are the markets look like right now? Yeah,

Matthew Finley  6:15  
so we're in about a three week sell off here to start the year. We've, we've been up and down. And over the last three weeks, a pretty good sell off. The NASDAQ, as an example, has sold off almost exactly 10% into earlier this week, the S and P closer to 8% that's completely normal. Bull markets tend to have two corrections in a year, correction being somewhere in the 10% range. It's just we haven't experienced much of that since the end of 2022 volatility, like we mentioned, is going to cause some of that. Again, stocks are extremely efficient, so they will adjust very fast. We just don't always like that adjustment. Yeah,

Matt Nelson  6:57  
right, right. Well, and you know, in the stock market has, has seemed for a while like it's getting long in the tooth, and we get questions from clients, you know, hey, my portfolio has been been up. You know, shouldn't we? Should we just all of a sudden get conservative? And it's difficult to answer that question, because it is a risk, reward, payoff. But right? You know, you wrote some some information in this, this recent article that just spoke to how long bull markets last, historically, and maybe how much less, how much more do we have left in this, in the cycle? You want to touch on that for a second? Yeah,

Matthew Finley  7:32  
you know, we're, we're sitting at, let's say, 60% up from the october 2022, low. It's been as high as maybe 70 ish, 75 the average bull market return historically is around 162% and 51 months. So on a historical basis, we have a ways to go. Whether we actually get to those numbers is irrelevant, because what happens today is is the new history tomorrow, but it does act as a guideline for us to to maybe tame some fear. It's pretty rare a market gets two years into a bull market and doesn't continue for another 123, years. So that's where we're sitting right now. The odds historically favor continuing the bull market. But we'll talk. There's definitely some road bumps out there that we need to consider. You

Matt Nelson  8:28  
know, before we get into some of the, some of the issues that have been popping up here lately, I want to touch on artificial intelligence. You know, you did a little blurb, which it's, you know, it's impossible, really, to address that whole topic even one article, but just give me your highlights of how you're feeling about that and what we should look for going forward. Yeah, you

Matthew Finley  8:49  
know, we hear about transformational things in our economy all the time. Very rarely do they actually work out that way. They might help, but they're not like grand changes. I think AI is actually going to be a growth mechanism and change similar to the industrialization of the world in the early 1900s I think it's that impactful. And I don't think most people have any idea yet what AI is, is already doing form or what it's going to do, and it will literally touch every single aspect of our lives, mostly for the better. But there will be some bad with it, too, of course, yeah,

Matt Nelson  9:31  
800% you know it. Probably a lot of our listeners are familiar with with the term. You can't, almost can't, let go anywhere without reading AI. But I think there's still plenty of confusion about what that actually means. And, you know, I love the little picture you put an article with the, you know, with the robots. And I think that's probably, you know, some of our clients, like, first vision of what AI is, is going to take over the world, right? In fact, I know you have a robot. I. Um, I hear it every time I talk to you. It seems like when we have meeting, but it's a, it's a vacuum robot, right? I mean, like this stuff has been around for a while. There's some form of of intelligence built into devices we've had for years, super simple, like just mapping out the layout of your house, right? So it can, it can vacuum around, not bump into everything. That's really what we're seeing is just an advancement of that, just just to a different level. And I don't think we should be scared of it yet, you know, if ever really, I mean, because we're controlling what what the inputs are. So, yeah, I mean, it's having a huge impact on our day to day lives. I know we're able to do a lot of research even faster. It's just more efficient to find the answers we need to then give real human advice back to our clients,

Matthew Finley  10:51  
right and and the latest iterations that we've been messing around with are the certain AI out there is allowing for some cognitive thinking through questions we ask, not just regurgitating something it finds. So that's another level of is, you know, AI intelligence that's coming out. I think the big, big one that our clients are going to recognize in the next, let's say, five years, is the change in how we get around. Yes, full self driving is here. Obviously Tesla is at the forefront of that. But what makes Tesla so far ahead of everybody else is not they've got some grant technology. It's that they've got millions of cars collecting data in real time, crunching it with these AI models to improve and get better for the next iteration of their self driving, and they're just that much further ahead. So to me, Tesla, as an example, is an AI company, not a car company, so that's how it's going to transform. And there'll be other companies that'll be able to catch up and do the same thing, right?

Matt Nelson  11:59  
It's all about the unlocking of information at this point, the ability to, we have so much information as a human race at this point, just locked away in all kinds of different locations. I can't tell you how often I read an article about, you know, the medical diagnoses just being advanced, you know, 100 fold, because they can actually find the answer just quicker. So

Matthew Finley  12:21  
that's actually the the space, I think AI is going to impact human lives the most is in the medical space,

Matt Nelson  12:29  
absolutely, absolutely. So lot of very good things that come with the with the markets. Think it's going to have, you know, the biggest players that are benefiting right now, your apples, Google's, Teslas, you know, the players that have the most ability to invest in this space are probably going to be the right the right play, if you will, that kind of theme for, you know, a little while longer yet it's going to take the the newer upstarts, just the capital involved for these newer upstarts to get going is very, very difficult. So as we're thinking about investment portfolios, just sticking with kind of those big themes, large companies, the ones that have the capital, we're not missing out on anything by by not trying to find, you know, the next micro cap that is going to hit it big. And

Matthew Finley  13:17  
as we know, a lot of those companies will never launch as an actual stock until they're actually fairly big. That's been the trend over the last number of years. So in other industries that have expanded or new industries, it does take time to get down to that level of innovation and worth an investment.

Matt Nelson  13:35  
Yep, absolutely. All right, so I want to jump ahead to you. Wrote about the unemployment numbers and labor supply and so, you know, just this morning, I think we got quite a bit of more information about the new the new numbers. Maybe comment on that. Are there any any surprises from from what you had initially wrote or thought was going to happen?

Matthew Finley  13:57  
Yeah, so unemployment has been a concern now for quite a while, we've been writing about it for probably two years, and it continues to erode slowly, close to what I think is a troublesome number. And now we have some things happening in Washington, DC that are going to increase that number because of layoffs in the federal government, that's a whole different conversation. But the point is, if we have high unemployment, we're damaging the consumer. Consumer is about 70% of our of our GDP, or economic growth, so it's a direct correlation to slowing economy as of right now, it hasn't really hurt our economy because company earnings are so strong, but I think we're on the verge of it possibly being an anchor versus a benefit, unless we see a pretty good change in the next. You know, handful of months, but Tomorrow's the big data that comes out in the Non Farm Payroll. Be interesting to see some of the data earlier this week, or some weekly indicators that are just showing it's probably going to be, continue to be weak, okay, as we move on.

Matt Nelson  15:13  
All right? Well, more to more to come on that. And again, as I was reiterate, sticking with big picture. You know, we're not making knee jerk reactions on this. Just because some data point comes out one day. We don't necessarily change the whole direction of portfolios, but it's definitely helping inform what what you're doing in the models. Right? Well, as we're getting long on time, I do want to, I want to touch a little bit on some of the policy changes, because I know there's been, we've gotten concerned to questions from clients. And you know, you can't, you can't avoid these questions coming up if you're searching the internet, internet at all. So, you know, policy changes around tariffs, the doge effect, you know, kind of the the good, bad and the ugly. So just give me some highlights there. Yeah.

Matthew Finley  16:00  
So obviously tariffs have been headline, as the President likes to use tariffs as a negotiating tool, possibly an economic weapon to get people to or countries to heal to his demands, that kind of thing. Well, that does create a little bit of market upheavals, especially in specific industries, auto manufacturing, chips and so forth. We always need to watch what the end result is, not not what's threatened or talked about. We have a great road map on tariffs from his first term. And again, it created some upheaval, but at the end of the day, it didn't really impact, and I could talk probably an hour on actual tariffs and the impact of tariffs, the only thing I'd say here is tariffs themselves are not inflationary. They're a supply and demand lever, but not necessarily inflationary. The Doge effect is one that I think is a big risk out there, not because of what they're doing is bad, but because of what they're doing is so fast and furious, it's going to dump, I don't know, a couple 100,000 people on the unemployment line until that gets absorbed by the private sector, and it will. It's just going to take some time. And then if they're going to cut 1 trillion or more in federal spending that comes straight out of GDP as well, and so that's going to have a short term slowing effect on the economy. That's the bad part. The good part, of course, is we have less debt, less annual expenditures, so then we're a healthier economic country moving forward, we just might have to rip the band aid off and feel that the other component, then, of all the policy stuff was, would be the geopolitical upheaval, whether it's threatening to have Canada be the 51st state or annex Greenland, which, you know, fun little topics, more bluster than reality there, of course, but the Ukraine war and the Gaza and Israel war, those are real things that do impact the economy, but they're not huge levers, right? So, like, war isn't a huge lever unless it's at home, but it will be a positive benefit to both Israel and Ukraine, war is ending. There will be some positivity that goes into the market, but it's not a huge economic booster for us. Sure.

Matt Nelson  18:29  
Yes, and you know, regardless of how we feel about the people being affected, you know, just have to remember what we can control, and we can't control some of these, some of the outcomes. We can't control the way that the administration is going about things. And so in our day to day lives as investment advisors, you know, basically the protectors of our clients portfolios, we just have to see this is what's happening. Agree with it or not, how are we going to react to it, and how we're going to make adjustments? And that's really the main points I want to take away today. I mean, you've done a great job laying some of this out. I'm sure we'll check in later this year with with other other, let's say, changes that we can't even imagine are happening that will happen in the future, because it's a bit unpredictable with some of this administration's decisions. All right, so that's all the time we have for today. Thanks for joining the show Matt and giving us your insights. If you want to get a little bit more commentary from the team, you can check out in the comment section a link to other other articles that Matt has written specifically the January article, and then this article that we're referencing today, some very good insights. If you want to learn more about the team behind the med tech wealth advisor, check out our website, perspective six group.com, but until next time, remember, financial freedom takes more than money, so find your purpose. Make a plan. And to live your life well, take care of each other out there you.

Transcribed by https://otter.ai