Rick Pitcairn, Chief Global Strategist at Pitcairn Financial Group, spoke with Quartz for the latest installment of our “Smart Investing” video series.
Watch the interview above and check out the transcript below. The transcript of this conversation has been lightly edited for length and clarity.
ANDY MILLS (AM): Trump has picked J.D. Vance as his VP choice and Vance has paired with [Elizabeth] Warren on some Wall Street legislation that has kind of reined them in in the past. Do you see this as a positive or negative for investors?
RICK PITCAIRN (RP): I’m not sure we really know yet. I think still in the core of the Trump administration are people like our Laffer and Steve Moore who are more pro-Wall Street. So they’re gonna have to have a little skirmish inside to figure out what that ultimate policy is gonna be. But I think the last few days have really showed us that politics, the fervor around politics, it’s on a high pitch right now. It’s on a high boil. And we’re trying to work with our investors to make sure that they keep their long-term portfolio objectives in mind and make sure that they’re navigating this tricky market with some objectivity. It’s even harder to do when you have four days like we just had.
AM: But the market overall this year has been up, up and away. Do you see that continuing?
RP: Our work shows that if you have a really strong first half, like we had, we had 14.2-ish, I think in the first half on the S&P 500, that you almost always have a positive second half of the year. It’s usually not quite as robust as the first half, but it’s usually positive. And if you combine that with the fact that we haven’t had a down S&P year in a presidential reelection year since 1944, which is logical because whatever administration is in power switches every switch they can to try to boost the economy and make things look good. It’s hard to see that this backdrop changes before the election.
AM: Things have shifted largely in Donald Trump’s direction. Is there anything an investor should do to prepare for a Republican executive branch?
RP: Our work shows that it’s the rare presidential election that has a huge impact on capital markets writ large. So I wouldn’t say I’m gonna change my asset allocation largely based on whether or not one party or the other wins the election. Still you can see it in sectors. For example, ever since the debate, financials, either the financial ETF or financials themselves, they’ve been on fire, financials. Financial stocks tend to do better. At least the perception is they do better on the Republican administration. Same with Mexico. Keyed stocks tend to do a little, the perception is they’ll do a little worse under a Trump administration. Green energy stocks will do a little worse under. So you’ll see those sector rotations and be cognizant of those. And if you’re super tactical, you can try to play those a little bit. But mostly with our clients, we’re trying to make sure that that portfolio structure lasts for the long run, which means let’s not overreact a short term political stimulus.
AM: Donald Trump has said he would not appoint Jerome Powell as the Fed chairman. What would a less independent Fed mean for the markets?
RP: We think that a less independent Fed is a bad thing. The Fed has a role, you know, everybody has their opinion on how they’ve played that role. But we really do believe that independence, as much as possible, is a good thing for the American economy if you were to have a less independent Fed under either administration, but under the Trump administration as we’re speaking, you know, I think he appointed Powell with the idea that Powell would be more friendly to the idea of rate cuts, whether it’s Covid or the backdrop or Powell’s style. That hasn’t been the case. He probably would replace him. I think that that if we keep fed policy overly easy for a long time for the wrong reasons, IE political reasons, it’s a big threat to our currency and a big threat to our markets. And we’ve actually had a reasonably easy money policy since 2009. And that’s why I say that our fiscal situation is very much tied to our monetary situation. And we need to keep an eye on both of them because they’re interrelated. And we need to make sure that whatever we do internally, that the strength of the dollar, the world’s desire to buy treasuries stays there because we’re running about a $1.8 trillion deficit and we need the world to buy those treasuries.
AM: Where should investors put their money right now?
RP: Well, we’re long-term strategic investors. There’s no doubt that the S&P 500 has come a long, long way. You got a concentration in the top 10 stocks that’s higher than it’s ever been. And I believe in the promise of AI, I believe. But you have to say that amongst those top 10 stocks in the S&P 500, they all do business with each other. You know, you got Google buys chips from Nvidia and Facebook buys chips from Nvidia. So there’s probably at some point gonna be some time, some sort of a slowdown. And I would make sure that I kept my money in some areas that aren’t right at the peak of the top of the record or setting, you know, FP 500 set 35 or 40 records this year have some money other places, international equities will do fine. They may not outpace the s and p 500, but they’re a good diversifier. Some real assets, some gold, some infrastructure. All things that round out a portfolio, I think are what investors should think about in a time when you’ve got a momentum market that’s running to extremes. ... To round out your equity position. You’re gonna have an equity position. But let’s round that out. Let’s not say, well, you know, gold or infrastructure and international hadn’t worked, so I’m gonna get rid of that and just buy the S&P 500 ‘cause you’re chasing that momentum and maybe this goes for another year and a half or two, but it stops at some point. Nobody’s really good enough to tell you when it stops, but it will stop. And you wanna make sure you’re positioned for that.
RP: That’s really interesting. Thank you very much, Rick.