By Michael Sincere
RIA Advisor’s Lance Roberts says Trump’s trade policies could trigger a correction soon.
‘There’s some good technical fuel for a 5% or 6% correction in late August or early September.’ Lance Roberts
Lance Roberts is a seasoned financial strategist and economist with more than 30 years of experience in investment management, private banking and venture capital. He currently serves as chief investment strategist and chief economist at RIA Advisors, where he leads market research and portfolio strategy.
Roberts is also the editor of the widely followed “Real Investment Report” and host of “The Real Investment Show,” offering daily and weekly commentary on macroeconomic trends, financial markets and investment strategy.
Known for precise, pragmatic market analysis, Roberts provides practical investment guidance using a variety of methods and tools. In this recent interview, which has been edited for length and clarity, Roberts discusses two big risks to the bull market right now, shares tips on managing portfolio risk and singles out several Big Tech and AI stocks he likes and one well-known stock he’s sold.
MarketWatch: What are the most significant risks or red flags you see in the current stock-market environment?
Roberts: The market is bullish, but I’m concerned we’re getting set up for another pullback sometime this year. Many institutions are still underweight equities and are not chasing the rally at this moment. In terms of sentiment, they are not back at the very bullish levels of exuberance.
Retail investors, however, are taking on an enormous level of speculative risk with call option volumes at record levels and inflows into leveraged ETF accelerating. There’s a bit of speculative exuberance. The market is currently approaching a point where an unexpected event could prompt the market to reassess forward earnings and lead to a correction.
MarketWatch: So you are expecting a market correction?
Roberts: The market can rally here for the next month or so on earnings, but Aug. 1 is the deadline on tariffs. If [President Donald] Trump suddenly reimplements 38% tariffs, and if the overbought, extended market deviates from its 200-day moving average, there’s some good technical fuel for a 5% or 6% correction in late August or early September. Based on technical indicators, we should at least retest the 200-day moving average at some point. That would be about 5% or 6% lower than the current level.
MarketWatch: What about the stock market now keeps you up at night?
Roberts: Everything keeps me up at night, but there are two things worth watching right now. I don’t think there are too many risks at the moment, but I believe earnings estimates are way too low going into this quarter. It’s the third- and fourth quarter that keep me up at night because if you take a look at earnings estimates for Q3 and Q4, they rocket to the moon. Investors are expecting 16% growth in the third quarter. I don’t know where they’re expecting this 16% economic surge to support that. There’s a big disconnect between economic activity and the markets right now.
?MarketWatch: Are there any stocks you are avoiding right now?
Roberts: The stocks I’m avoiding right now are the ones primarily subject to tariffs. For instance, I’ve owned Apple (AAPL) for 10 years, but I sold it this year because it’s lagging in the AI development race. Apple also has significant exposure and risk to tariffs because of their exposure to China’s development. We sold Apple and took a position in Meta Platforms (META) due to its growing revenues. Apple is an example of a company that I’m trying to avoid right now.
MarketWatch: What stocks do you see as long-term winners?
Roberts: If you’re investing in AI, I like Palantir Technologies (PLTR), which is extremely overbought right now, so I’d wait for a pullback. You have to own Nvidia (NVDA), but you must wait for a pullback; it’s very extended. Keep in mind that the companies we’ll be talking about 10 years from now won’t be these guys, just like it was during the dot-com boom.
Also keep in mind that we don’t have enough AI factories. The bigger you build that factory, the more money you make. To do that, you need power, and we don’t have enough of it. That is why companies such as Oklo (OKLO) and Cameco Corp. (CCJ) have considerable long-term potential. They’re super overvalued right now because it takes 10 years to build a nuclear power plant.
Risk is not about how much money you make when the market goes up. It’s how much you lose when the market goes down.
MarketWatch: What’s your advice for managing portfolio risk in this kind of market?
Roberts: The first thing not to do is to sell everything, because if you move to cash, the market often keeps rallying. Back in March, we were at all-time highs and everyone was super bullish. We’re now back at those levels. Here is my recommendation: If you owned stocks that have performed exceptionally well, consider taking some profits.
That doesn’t mean to sell everything. However, if your normal position is 4% or 5%, trim it back to 3%. Raise some cash. Do you own a weak stock in a strong market? If that’s the case, then sell your laggards. If it’s a strong company that’s not participating right now because it’s out of favor, consider adding to the position. It’s about looking at your portfolio and rebalancing your risk.
MarketWatch: How should investors think about risk during a bull market?
Roberts: What people don’t realize is they often take on more risk in a bull market than they realize, and that risk shows up when markets decline. Risk is not about how much money you make when the market goes up. It’s how much you lose when the market goes down. Investors need to take an honest assessment of their personality and think: If the markets decline by 10% tomorrow, what would I do? Would you panic and sell everything? If you don’t know that answer, then think about how you felt in April, and you’ll have a better idea of where you are.
MarketWatch: Why hasn’t the market reacted more negatively to the latest round of tariff news?
Roberts: I tell clients not to worry about the headlines so much. Take a step back and consider how the tariff headlines impact earnings for companies such as Nvidia, Microsoft (MSFT) or Apple. If it doesn’t have a major impact on forward earnings, then there’s no need for the market to reassess valuations. So, the market is back to being very exuberant again because investors are betting that the tariffs won’t exceed 10% or 12%.
MarketWatch: What’s your view of how the Federal Reserve is managing the U.S. economy?
Roberts: The Fed, as smart as they are, gets trapped into these mental biases, and they allow that to impact their forward thinking. In my opinion, employment’s OK, but it’s slowing down. We are seeing some weakness in employment, not only in the BLS report, which has weakened, but also in the ISM manufacturing report. The employment indexes are also showing a lot of weakness. I think the Fed should have cut at the last meeting, not aggressively, but 25 basis points, and then see how things are going.
MarketWatch: What risks does Federal Reserve Chair Jerome Powell face if the central bank waits too long to cut rates? Shouldn’t the Fed be cutting now?
Roberts: Powell is worried that if the Fed cuts rates, it will cause inflation. If something happens, for example, if Trump takes a particularly aggressive stance on tariffs, it could cause the economy to buckle. And all of a sudden, the Fed is having to cut a lot more aggressively, and markets don’t like that. The market is OK with a controlled 25 basis-point cut, but they don’t like aggressive cuts. If the Fed started to cut by 50 basis points, then you know that something broke in the market.
MarketWatch: How could tensions between Trump and the Fed impact the markets?
Roberts: The two risks in the next two months are that Powell is late in cutting rates, and the White House’s battle with him accelerates. My concern is that if Powell quits or is forced out of office, the markets may not like it. The market relies on the Fed’s independence.
Michael Sincere is the author of books including “Understanding Stocks,” “Understanding Options,” and “Help Your Child Build Wealth.”
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-Michael Sincere
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