Stocks (^DJI, ^IXIC, ^GSPC) are trading mixed and the S&P 500 hit its 33rd record high this year. Tyler Ellegard, Portfolio Manager at Gradient Investments, appears on Market Domination to discuss his outlook for the second half of the year.
Ellegaard offered cautious optimism, suggesting that “the upswing may continue,” but warned that the second half of the year is likely to be “volatile.” He advised investors to adopt a more diversified portfolio approach and warned against over-reliance on large-cap stocks like Nvidia.
Ellegaard cited energy, healthcare and industrials as promising areas for investment. But he clarified that this doesn’t mean writing off big tech companies entirely: “That doesn’t mean we’re going to write off all of these giants. We still like Google, Meta and Amazon. We think there’s still upside. But right now we might just be a little bit underweight Nvidia, Microsoft and Apple.”
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Video Transcript
Stocks ended the day mixed on a holiday-shortened trading day, with the S&P hitting its 33rd record high of the year. We spoke with Tyler Eligard, Portfolio Manager at Gradient Investment, to find out more about what this means for investors heading into the second half of the year.
Tyler, nice to meet you.
As my colleague Jared mentioned, bulls have taken control of the S&P, which has just hit its 33rd record high this year.
Tyler, what do you think about that?
What would you tell your customers about it?
Do you think the good times will continue?
So yeah, I mean, I think generally speaking we may have some good times ahead, but the second half of the year is definitely going to be volatile.
Obviously, there is a heated election coming up, but after today’s news, no one really knows who the nominee will officially be on the Democratic side.
Hmm, so the second half is definitely going to be eventful.
But historically, if you look at it statistically, in election years, presidential election years, and years where you’ve had such strong performances, you usually see a decent performance in the second half, but I think from a broader perspective, you should try to make professional gains from stocks that are doing well and diversify your portfolio a little bit.
There’s no need to bet everything on NVIDIA right now.
Of course, it’s working very well, but I think getting a more diverse portfolio from the top six companies would give us more satisfied customers.
So, Tyler, what are you trying to diversify into?
Well, I think energy is a good option right now.
Well, we like Schlumberger, SLB, which have slightly different names, or Sun Core Energy, which is a Canadian name, to name a few.
Um, you can see some of the industrial side.
On the infrastructure side, the cement company Bill Croft is definitely one of our favourite companies.
Um, but that doesn’t mean we’re taking everything away from these mega-caps, right?
We still like Google, Meta and Amazon and believe they still have upside potential, but we may be slightly undervaluing Nvidia, Apple and Microsoft.
now.
Tyler, what about health care?
It’s in my notes.
It’s also a sector you’re bullish on.
Generally speaking, most of the trends in the healthcare industry, at least for the past year and a half, have been toward G LP.
Beyond these stocks, I think there are some opportunities in the diabetes space, and one of them, Dexcom, is my favorite right now.
Um, the ability to penetrate not just the U.S. market but also the international market and the new products that they’re introducing.
You know, I think this company has a pretty strong growth trajectory going forward.
Well, they have a good tailwind behind them.
So, I think from a health care perspective, I would choose the name Tyler.
Looking at how calm the market has been, we haven’t seen any volatility in quite some time, but do you think earnings season is going to change that and what do you think could potentially spark another wave of volatility heading into earnings season?
Of course, the election.
Certainly, investors will be looking at the second quarter and also at how last year’s fourth-quarter earnings look. The first quarter of this year has been strong so far.
Earnings revisions are actually positive, but I think a lot more attention will be on the elections and what those policies mean. For example, on Monday, interest rates spiked due to potential policy actions from either party.
So I think the second quarter will certainly be important, but I think the sentiment and the focus will be on the election and a deep dive into the policies of both candidates and how that will really impact the market over the next six months to a year.
Tyler, we’ve pretty much done this entire interview.
We didn’t even mention the Fed, which is interesting in itself.
So, as an investor, how close are you to the Fed?
Will the Fed Cut Rates This Year?
Do you think that’s important to whether the market continues to rise?
Well, going into the year, I think the consensus was 6-7.
Initially, our prediction was 1-2.
The data was good, the growth was good.
The Fed was holding strong.
Well, their comments made it seem like they weren’t planning on making the cut.
Now we’ve pivoted a little bit, but I’m not sure we’ll still get it.
It’s not cut at all.
Hmm, I know the Fed likes APOs, but I think a rate cut ahead of a contentious election could be interpreted as a political move.
The Fed wants no part in this.
So, I think around December is probably your best bet.
And despite that data, the economy continues to perform well.
So there’s really no reason to make cuts at this point.
Tyler, unless things start to get even worse as September and October rolls around.
If you look at some of the expectations for inflation here, you see a disinflationary trend, or maybe a little bit of a disinflationary trend.
Commenting on the matter from Portugal earlier this week, Powell said he was encouraged by the developments.
What do you think about the Fed’s final steps in its efforts to get back to its 2% target?
Is that a pretty big deal?
I think it will take quite a while.
As you explain some of the opportunities you’ve identified within the market, how do you assess that?
It will certainly be difficult for them to reach 2% and they should not expect to reach 2% by the end of this year.
And Paul said that too.
So the key for us is obviously to look at housing data, which is one of the stickiest pieces.
However, we are also facing headwinds from last year’s deflation and some durable consumer goods. As you know, some of our businesses posted negative results last year.
So I think there could be some headwinds this year.
So, generally speaking, I think housing prices need to come down or slow down, and I think energy prices need to come down or slow down as well, food prices need to come down or slow down as well.
This will be the biggest headwind and I think inflation will continue to trend.
So, it’s going to be a challenge and I don’t think we’ll be able to hit the 2% target this year.
Okay, Tyler Elligard.
I’m glad you came.
Thank you so much for speaking with us here.
