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Uncertainty is top of mind for many investors with the upcoming election, the Federal Reserve’s November meeting, and ongoing geopolitical instability. Market Domination hosts Julie Hyman and Josh Lipton sit down with David Bahnsen, The Bahnsen Group's chief investment officer, to discuss how he navigates the market amid seemingly unending uncertainty.
Bahnsen tells Yahoo Finance that the recent economic data is “reasonably benign. It doesn't reflect a red-hot economy. It does reflect some degree of slowing down the pace of advancement. But nevertheless, we are still hanging in there.”
He says he does push back on the idea that Jerome Powell stuck the soft landing. “This is totally unrelated to the Fed activity for the very reason that the Fed shouldn't have to try to stick that landing. It's impossible for 12 people around a conference room table to guess what every nuance and variable from employment to prices, wages, all the other factors.”
The chief investment officer explains that investors should accept “the idea that geopolitical instability is a permanent part of human nature, that there's some form of domestic political uncertainty is a permanent part,” though it’s likely to be heightened as the election approaches.
For more on the latest market moves, want to welcome in now David Bonston, the Bonston Group CIO. David, it is great to have you on the show. Want to start David with with all the economic data we got this morning. Inflation, we was just talking to Julia about that, personal income, consumer spending. There were folks, I'm sure David, they looked at that data and they said, listen, that is more data, that is more evidence that we have an economy that is cooling but not crashing. And maybe as rare as it is, J. Powell actually did stick that soft landing. How do you see it, David?
Well, I agree that the data is reasonably benign. It doesn't reflect a red hot economy. It does reflect some degree of slowing down the pace of advancement, but nevertheless still hanging in there. The only thing I'd push back on is that J. Powell stuck the landing. I I think that this is totally unrelated to the Fed activity for the very reason that the Fed shouldn't have to try to stick that landing. It's impossible for 12 people around a conference room table to guess right what every nuance and and variable from employment to prices, wages, all the other factors you brought up are going to do. So far, things are pulling together here and we're going to see what 2025 brings.
We will see what it brings. In the meantime, we're not sure even what the next few months of this year are going to bring, right? We don't know, you know, what size the next couple of cuts from the Fed are going to be. We don't know who's going to win the election. We don't know the outcome of some of the geopolitical elements we were talking about. You think all of this is going to result in some increased volatility. How should investors sort of approach that?
Well, I think that both things we're talking about, both the preconditions for Q4 that you just described and what I'm about to say I think investors should do are permanent. This the idea that there's geopolitical instability is a permanent part of human nature, that there's some form of domestic political uncertainty is a permanent part. It's true. It's heightened with the unknown of the election. Um but but even the issue of monetary policy, for the first time I actually think there's quite a bit of certainty. Is it going to be 50 in November and 25 in December or vice versa? I don't think it matters at all. But we know that they're going to be taking another 50 to 75 basis points out of the Fed funds and pursuing more of the same next year. Uh our solution is always in dividend growth equities because we simply believe cash flow is one element that allows you to not have to try to guess exactly what's happening in the macroeconomic environment. For income investors, they get consistent growing cash flow. For accumulators, they actually benefit from volatility. So we've just philosophically centered our money management around dividend growth equity.
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He notes that “the issue of monetary policy, for the first time, I actually think there's quite a bit of certainty,” explaining, “We know that [the Fed is] going to be taking another 50 to 75 basis points out of the Fed funds and pursuing more of the same next year."
“Our solution is always in dividend growth equities because we simply believe cash flow is one element that allows you to not have to try to guess exactly what's happening in the macroeconomic environment for income investors. They get consistent growing cash flow for accumulators. They actually benefit from volatility. So we've just philosophically centered our money management around dividend growth equity,” Bahnsen says.
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This post was written by Naomi Buchanan.