By coinnews 
00:00 Speaker A
All right, Yahoo Finance is continuing its coverage here at the Milken Conference in California. Have a really cool guest coming up right now. That is Nuveen Chief Investment Officer, Sarah Malik. Sarah, good to see you. It’s been a, it’s been a couple months since our last time.
00:12 Sarah Malik
Yeah, hi, good to see you.
00:14 Speaker A
So, um, the market is coming off a nine-day rally. Why have stocks rallied after liberation day in the most simplest of terms? Because a lot of executives I’ve talked to here at Milken, they say that the economic backdrop remains very uncertain and they are not convinced we will not enter a recession.
00:33 Sarah Malik
Well, that was the best day to day-to-day back-to-back rally we’ve seen in 20 years. And I think there’s two reasons for it. Number one, when markets tend to go down quickly, they actually recover quickly. So history did repeat itself. And number two, I think liberation day was peak tariff pain. And we’ve seen a lot of negotiating since then. And I think markets are starting to appreciate that. And also I’ll throw in what first quarter earnings season, expectations were for 6% earnings growth coming into this quarter. We’re at currently about 12%. So it’s been a strong earning season, not a strong outlook season, but a strong earning season.
01:03 Speaker A
When I, you know, I look at markets, of course they are a forward-looking mechanism and I see the market rally and I’m thinking investors are waiting for something good to happen in the second quarter, third quarter, fourth quarter. When you talk to investors, what are they so hopeful on?
01:18 Sarah Malik
I think there’s three things we can look forward to as a catalyst and that’s either more tariff negotiations, better earnings or treasury yields settling down a bit. So tariff negotiations, obviously that’s going to be the driver of market volatility going forward. We’re going to see a lot of back and forth. We just saw it with the movie tariffs at 100% coming in, you know, just yesterday.
01:40 Speaker A
It’s like movies, like, but this, but this stuff keeps coming out of, it’s like a whack-a-mole. You can’t keep track. I mean, investors, are they confused?
01:50 Sarah Malik
Yeah, I think confusion is probably a word to describe it. Investors want clarity here and that would be helpful. You can do calculations if you know where the tariffs are going to end up. So, as an example, our calculations show that if tariffs were at about 10% for the rest of the world, it would hit GDP by 1.5%. You just skirt a recession there. So once we can get more clarity on that, that would be helpful. Earnings, I mentioned, it’s been a strong quarter, but the outlooks very murky. Just Marriott reporting this morning, yet again, pointing to lower rev par going forward. The consumer is at risk here. And then treasury yields are something to watch. The 10-year treasury yields back up again over the last few days at 4.3% is telling you the bond market is worried.
02:28 Speaker A
Yeah, Marriott, that’s a good, uh, point on Marriott, uh, latest consumer company. We heard it from the airlines, Mattel pulled guidance, Ford pulled guidance. Our companies, do investors even, are they upset that we’re not getting guidance anymore?
02:45 Sarah Malik
I mean, I think it was expected. Coming into this earning season, we thought a lot of companies would either pull guidance or lower it pretty significantly because of the uncertainty. So I think that, that was in the expectations, but it’s not great because obviously we want to know what the companies are seeing and what they’re thinking. They’re saying right now that it’s very cloudy out there.
03:03 Speaker A
Are investors willing to hold stocks in the face of more negative data? I was thinking back to when the GDP data hit, stocks sold off. Are they still going to write off that data as backward-looking?
03:18 Sarah Malik
Well, that’s been the challenge because data has been backward-looking. I think what investors will be looking for is what is the Fed going to do with the data. So, for example, tomorrow, listening to the Fed, are they going to downgrade economic expectations? Are they going to still say that tariff driven inflation is a one-time bump? All of that, I think will be important. Right now, the market’s pricing in three rate cuts this year. We think there’ll be two, so the Fed will back off a bit. I think the risk is the Fed though. They’ve been somewhat vocal that they’re watching the employment market very closely. Employment markets tend to crack when a recession starts. So if they waited that long to cut rates, I think we’d be late.
03:52 Speaker A
So you’re still looking for rate cuts. Uh, don’t tariffs add to inflationary pressures?
03:58 Sarah Malik
They do, but if you listen to Jay Powell, he said that he views inflation due to tariffs as transitory.
04:03 Speaker A
Well, he said that a couple years ago, too. Look how that turned out. It’s just like one big floating blob of inflation.
04:09 Sarah Malik
I mean, that’s true. If you look at inflation before tariffs though, it was getting pretty close to their target. So that, I think that is the silver lining in that. I think two rate cuts this year is still reasonable because the economy is showing signs of a slowdown, so they need to balance that slowing economy with increasing inflation. But I think we need to really hope doesn’t happen though is a stagflationary period. I wouldn’t take that off the table. Our base case is that we skirt a recession if tariffs level out at about 10% for the rest of the world. But stagflation is still a scenario that could be on the table.
04:44 Speaker A
You made a good point on, on the Fed potentially lowering growth expectations. What would be the read through to markets?
04:51 Sarah Malik
I think markets would probably expect that some mild downgrade of growth expectations would be expected at this point. We are seeing it. Even though employment markets have been the resilient, strong area of the market, consumers are clearly slowing and that has been the big driver of this economic cycle.
05:06 Speaker A
I think about some of the things we have on tap here at Milken. Of course, Nvidia CEO, Jensen Huang, is going to be giving a speech. How important is a speech like that from Nvidia, uh, from Jensen to the broader market? I mean, we need, I imagine, to see tech stocks like that working if the broader market is going to rally or grind higher.
05:23 Sarah Malik
For the US, that’s important because about 30% of the S&P historically has been technology stocks. But, you know, AI and tech has been a sweet spot in this earning stuff for the first quarter. Just looking at Microsoft last week, uh, their numbers were strong. I don’t think AI is dead. I think AI is alive and well and the boom is here, demand is strong. And I think there’s, tech is still something that will continue to do, do well over time, especially if the 10-year yield starts to moderate a bit. That’s positive for tech stocks, software stocks.
05:52 Speaker A
I can’t believe it’s May and we’re already starting to think about the second half of the year. When you talk to investors, what sectors are they gravitating towards as we, I guess, near 2026? Can they even think that long given everything that’s going on?
06:06 Sarah Malik
Well, if you think about when tariffs should start to really hit the economic numbers, about three to four months. So we’ll see that maybe late summer, early fall. Sectors people are looking at, so we like infrastructure. This is an area that is more US focused as we bring supply chains home, build more infrastructure in the US, more data centers. This is all positive for that sector. It’s also an inflation hedge. One of the areas of the market that’s outperformed the S&P year-to-date is the dividend growers, the S&P 500 dividend aristocrats index has been outperforming. These are companies that are fundamentally strong. They tend to increase their dividend over time, so they’ve been more defensive, tend to be lower volatility during periods of downside. And I would look at select technology companies in, in the cloud, um, in AI. I think that’s an area that could revive as time goes on.
06:48 Speaker A
What about cash? What percentage of your portfolio should be in cash?
06:52 Sarah Malik
You know, I think that the issue with cash is that I can go into fixed income and get high single digit returns and like high yield corporates for lower risk. And you’re not going to earn that in cash and the returns for cash are going to deteriorate as the Fed lower rate, lowers rates. So I, I think cash is obviously a great asset class and something to hold for expenses that you need and for emergencies, but you can out earn cash in areas of fixed income, equities with 12%, even if we downgrade it from there, which I think we will, though, you know, six to 12% earnings growth is strong, and alternatives also are a great piece to add to portfolios.
07:24 Speaker A
All right, I’m going to say it. Cash is trash. I don’t have to say it, I’m going to say, I’m going to give myself my own headline. All right, Nuveen, uh, CIO, Sarah Malik, always a pleasure to see you. Thanks so much, I appreciate it.
07:35 Sarah Malik
Good to see you. Thanks for having me.
07:37 Speaker A
All right, do stick around. Much more ahead on Yahoo Finance.