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Michael Miranda, CFA®, Dan Phillips juillet 23, 2025 Balados

Mike Miranda sits down with Dan Phillips, Chief Investment Officer for U.S. Wealth, to examine investment opportunities as markets hover near record levels in mid-2025. They explore how markets have rebounded 8% year-to-date, after a 15% decline earlier in the year, driven by expectations of more moderate tariff outcomes and anticipated trade deals ahead of the August 1st deadline. Dan discusses the "death of American exceptionalism" narrative that pushed the dollar down over 10% against other currencies, arguing this trend may reverse as global investors recognize the continued strength of U.S. markets and companies.

The conversation covers how a modest economic slowdown could benefit equities through potential Fed rate cuts while supporting secular growth companies, particularly in the tech and AI sectors. With corporate earnings expected to accelerate from 6% growth in 2024 to 8% in 2025, and 10% in 2026, Dan highlights expanding margins and productivity gains as key drivers. However, he identifies inflation as the primary risk that could derail the bull case, especially with higher tariffs on the horizon, while emphasizing that thoughtful optimism must remain grounded in earnings fundamentals and long-term discipline.

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Transcript

Mike Miranda:

Welcome back to Beyond the Portfolio, where we explore the perspectives and possibilities shaping today's investment landscape. We're recording this podcast today, Tuesday, July 22nd. Welcome to Beyond the Portfolio. I'm Mike Miranda, Head of Investments for BMO Private Wealth North America. In each episode, we'll bring you expert analysis from BMO's top strategists and economists to help you navigate market conditions and stay informed. In recent episodes, we've taken a close look at the economic and market forces shaping the path forward in 2025, from macro volatility and policy shifts to the longer term structural themes influencing asset allocation. One thing is clear, uncertainty remains high, whether it's around growth, inflation, central bank policy or global risks.

And yet, despite this wall of worry, we've consistently returned to a framework rooted in thoughtful optimism, grounded in data, fundamentals and long-term perspective. Today I'm joined by Dan Phillips, Chief Investment Officer for U.S. Wealth, to dig deeper into one of the most pressing questions we're hearing from investors. With markets hovering near all-time highs, is there still room for upside? We'll explore what the markets may be pricing in, how earnings and rates factor into the outlook and what could still go right or wrong as we navigate the back half of the year. With that, let's dig in. So Dan, let's start with the obvious. We're at or near market highs, what do you think the market is pricing in right now and why might there still be room for optimism from here?

Dan Phillips:

Well, first, Mike, thanks for having me today. And yes, after dropping 15% earlier this year with investors spooked by the Trump administration's aggressive, shall we say, approach to introducing new tariffs, the markets have rebounded nicely and are now up an impressive 8% for the year. So clearly markets are pricing in a more benign tariff outcome, both in terms of the ability to reach deals and the ultimate impact on goods prices. Thus far, we haven't seen much in the way of inflationary pressures from the initial 10% tariffs that were put on, which has encouraged markets to move higher as we wait for these trade deals to materialize ahead of this August 1st deadline.

One area of potential optimism for U.S. markets to move higher from here would be the unwind of the death of the American exceptionalism story, which was very much associated with the tariffs that have been put in place recently. This pushed the dollar down over 10% versus a basket of other currencies year to date. But it seems like the death of American exceptionalism is greatly exaggerated as the U.S. continues to be the deepest and most liquid market in the world, and its companies are the envy of the world as well. A reversal of this trend would bring investment money back into the U.S. supporting the markets.

Mike Miranda:

Thanks, Dan. That was very helpful. Now, we've also seen signs of a modest economic slowdown or, at least at some level, concerns that that might materialize more in the back half of the year, and this has obviously influenced expectations for rate cuts. So how do you see that dynamic, slower growth and potentially lower rates impacting the outlook for equities over the back half of the year?

Dan Phillips:

So long as the growth slowdown is modest and doesn't turn into something approaching recession, I would think investors would welcome such an outcome as it should help keep inflation on its current downward trajectory towards the 2% target the Fed has, and as you mentioned, allow for Fed rate cuts in the back end of the year. U.S. markets have a number of companies that are secular growers, meaning that they aren't overly dependent on the broader economy. You can think of many of the names in the tech sector, for instance, especially those with ties to AI. Investors will happily trade some economic growth for a greater assurance of rate cuts, which should push valuations on those secular growers higher.

Mike Miranda:

Thanks, Dan, that's helpful. Maybe we could talk a little bit then about earnings broadly, I think a big part of the bull case for the market centers around corporate earnings. So what's your outlook for the earnings growth over the next 12 to 18 months, and are expectations right now too high or not high enough at this point in the cycle?

Dan Phillips:

Yeah, so after a 6% growth rate in 2024, we are seeing something closer to 8% in 2025, and accelerating even further to 10% in 2026, and so we find ourselves in an accelerating growth environment, which should provide fundamental support to market prices. Driving this earnings growth outlook is consistent double digit earnings growth out of the tech sector, while other sectors that are struggling this year such as energy and consumer stocks should see rebounding earnings in 2026. As we look at the current earnings season, companies have been beating by more on the bottom line than on the top line, which suggests some expanding margins. As new technologies like AI are deployed, we could see more margin expansion as productivity increases, and this could lead to even more earnings upside.

Mike Miranda:

That sounds great, Dan. Obviously that's a somewhat bullish outcome for the market backdrop. So let's pivot maybe a little bit towards some of the risks. What are the biggest risks that you see right now that could derail that bull case, whether it's macro headwinds, geopolitical shocks, disappointing earnings, or even something beyond that?

Dan Phillips:

Yeah, so perhaps the biggest risk to the bull market is inflation. As we were discussing earlier, inflation has remained contained despite the tariffs put in place thus far. But companies had built inventories before the first round of tariffs took hold, and there are higher tariffs coming as well. So there are reasons to believe that inflation can remain contained as some of the tariff will be eaten by the exporting country, while the lower oil prices that we've seen will also help offset the tariffs. And expectation for modestly slower economic growth should also help relieve pricing pressures too. But should inflation rear its ugly head, the Fed will no longer be in a position to cut rates and markets may have to face the prospect of stagflation, which is bad, not just for stocks, but for bonds as well. Geopolitical shocks are also an ever-present risk, especially in this environment.

Mike Miranda:

All right, Dan, thanks for that perspective and thanks for joining us today and sharing your broader outlook for both the markets and the risks that we see potentially ahead of us. As always, it's incredibly helpful to ground these conversations in both market reality and long-term discipline. If there's one takeaway that I took from today's discussion is that even amidst these elevated uncertainty backdrop from shifting rate expectations to uneven growth and geopolitical noise, there's still a case for thoughtful optimism, but that optimism has to be rooted in fundamentals, and I think you outlined that exceptionally well.

Earning strength, certainly as one of those key pillars, certainly the need for diversification, and a forward-looking approach to risk. We'll continue exploring how best to navigate this evolving investment landscape of 2025 in future episodes with an eye towards positioning portfolios, not just for today's challenges, but for tomorrow's opportunities. Thanks for listening. We'll see you next time on Beyond the Portfolio. Thank you for listening to Beyond the Portfolio. You can follow us on Apple Podcasts, Spotify, or your favorite podcast app. Until next time, I'm Mike Miranda. For BMO disclosures, see episode description in your podcast player.

Au-delà du portefeuille balado : Les marchés frôlent leurs sommets historiques – composer avec les occasions et le risque

Par : Michael Miranda, CFA® , Dan Phillips

Balados juillet 23, 2025

Mike Miranda s’entretient avec Dan Phillips, chef des placements, Gestion privée États-Unis, afin d’examiner les occasions de placement alors que les marchés approchent de niveaux records à la mi-2025. Ils explorent la façon dont les marchés ont rebondi de 8 % depuis le début de l’année, après une baisse de 15 % plus tôt cette année, en raison des attentes de tarifs douaniers plus modérés et des accords commerciaux prévus avant la date limite du 1^er août. Dan parle de la « fin de l’exceptionnalisme américain », scénario qui a fait plonger le dollar de plus de 10 % par rapport aux autres devises, indiquant que cette tendance pourrait s’inverser, car les investisseurs mondiaux reconnaissent la vigueur continue des marchés et des sociétés aux États-Unis.

L’entretien porte sur la façon dont un ralentissement économique modeste pourrait profiter aux actions grâce à d’éventuelles réductions de taux de la Réserve fédérale américaine tout en soutenant les sociétés de croissance à long terme, en particulier dans les secteurs des technologies et de l’intelligence artificielle. Comme les bénéfices des sociétés devraient accélérer, passant d’une croissance de 6 % en 2024 à 8 % en 2025 et à 10 % en 2026, Dan souligne que l’augmentation des marges et les gains de productivité sont des facteurs clés. Toutefois, il indique que l’inflation est le principal risque qui pourrait faire dérailler le scénario haussier, en particulier en raison de la hausse des tarifs qui se profile, tout en soulignant que l’optimisme réfléchi doit demeurer ancré dans les données fondamentales sur les bénéfices et la rigueur à long terme.

Les renseignements dans ce balado sont fournis à titre informatif seulement et ne constituent pas des conseils financiers, comptables, juridiques, fiscaux ou de placement et ne doivent pas être utilisés à cette fin. Les circonstances individuelles et les événements actuels sont des facteurs essentiels pour déterminer les meilleures stratégies à mettre en œuvre. Les opinions exprimées dans ce balado appartiennent à ceux qui les émettent seulement à la date de l’enregistrement. Elles ne reflètent pas les opinions d’une quelconque organisation ou entreprise et peuvent changer selon la situation économique et la conjoncture des marchés. Les participants, ainsi que Banque de Montréal et ses sociétés affiliées et/ou ses dirigeants, administrateurs ou employés respectifs, peuvent détenir des positions sur tout titre mentionné dans la présentation. Les renseignements présentés ne constituent pas un acte de sollicitation de la part de qui que ce soit en vue de l’achat ou de la vente de titres ou d’un autre produit à qui que ce soit, y compris toute personne résidant dans tout territoire où un tel acte de sollicitation n’est pas autorisé ou ne peut être effectué légalement, ou à toute personne à qui il est illégal de faire une telle sollicitation. Tous les produits et services dont il est fait mention sont offerts en conformité avec les lois locales seulement (et notamment les lois sur les valeurs mobilières en vigueur) et seulement aux endroits où il est légalement permis de le faire.

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