Many investors should find comfort in the following backdrop: a robust bull market, pro-business policies pledged by the Trump administration, and a Federal Reserve on the verge of executing a soft landing. The greatest personalities on Wall Street, though, don’t seem too optimistic about the coming year.
This week, hedge-fund tycoons and industry experts gathered in Miami for an alternative investments conference, and they all expressed caution about high market prices and the possible drawbacks of President Donald Trump’s protectionist policies.
Steve Cohen of Point72 stated that he thinks a crackdown on immigration and tariffs will increase inflationary pressures and reduce consumer spending. As a result, the owner of the Mets and head of the family office anticipates a rough market overall, especially in the second half of the year.
At the iConnections Global Alts conference, which was called Hedge Fund Week, Cohen stated, “I don’t think that’s a great backdrop in 2025.” If it hasn’t already, I think the markets will peak in the next months, and I think the second half will be a little more difficult.
The two-year gain of 53% is the most since the over 66% rise in 1997 and 1998, and the S&P 500 just recorded its second consecutive annual gain above 20%. Although the equities benchmark has increased by 3% so far this year, investors were only recently exposed to extreme volatility this week. Earlier this week, Nvidia and other megacap tech companies saw a huge sell-off due to a Chinese artificial intelligence rival.
Bridgewater’s co-chief investment officer, Karen Karniol-Tambour, stated that she now has a neutral outlook on the markets due to the combination of both higher-than-expected GDP and hotter-than-expected inflation.
She stated that now is not a good time to take a lot of chances and really lean in. On the margin, you are more likely to have robust growth and higher-than-expected inflation, but that might quickly change because of the level of policy uncertainty. It is easy to imagine one policy shift significantly altering the macroenvironment.
Rebuilding the fixed-income allocations is the largest opportunity she sees in public markets at the moment, according to Karniol-Tambour, who assists in managing the largest hedge fund in the world.
Howard Marks, co-founder of Oaktree Capital and already on Bubble Watch, warned delegates that this week’s Nvidia episode demonstrates the irrationality of the markets in the short term and the pervasiveness of psychology.
Given that the majority of sell-side strategists predict relatively modest returns in the equity market this year, high-yield credit could be a compelling substitute for stocks, according to Marks, a renowned value investor who famously predicted the dot-com bubble.
Isn’t it preferable to contractually receive 7.3% returns from high-yield bonds versus low single-digit returns from the S&P 500 with significant uncertainty? “Marks said.” Everyone should examine their holdings and make an effort to ensure that they are based on solid and steadily growing fundamentals.
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