Transcript:

Caroline Woods Joining me now, Danielle DiMartino Booth, CEO and chief strategist for QI research. Danielle, great to have you back. Thanks so much for joining us.

Danielle DiMartino Booth And thank you for having me. Caroline, good to see you.

Caroline Woods Danielle, I want to dig in to both your view on the market and the economy. But first, I want to get your take on some of today’s headlines, starting with the DOJ investigation into Fed Chair Powell. Is the independence of the Fed in jeopardy?

Danielle DiMartino Booth Well, I certainly think the independence of the Fed is under attack. And, and that is highly problematic. I think that the odds of an indictment being pressed forward or being successful are very low. I will say that even though I certainly have not been, in agreement with, with Powell and with the, with the pace at which the Fed has been easing monetary policy, we’ve certainly not been, in agreement on that.

I think it was critical that that Jay Powell came out last night and was finally, finally, finally adamant and and and assertive and articulate and aggressive in pushing back against this extraordinary, unprecedented attack on Fed independence. I do not think it is in jeopardy, however, which is why markets are shrugging it off because of the actions of one, Senator Tom. Tom, tell us.

Caroline Woods Yeah, we’re certainly seeing that play out today. Markets started lower and we’ve seen a reversal in major averages of, just barely above the unchanged line, but in the green nonetheless. What about this call from President Trump to cap credit card rates for one year at 10%? It’s clearly taking a toll on credit card companies, bank stocks. But would that help or would it hurt consumers? There’s obviously concerns that it could restrict lending if it does, get congressional approval.

Danielle DiMartino Booth Well, it was that last part of the question. Caroline. That was key. If it gets congressional approval. And of course, we’ve seen a Congress that has done very little, and in the last year or so, the bank lobbies are very, very strong. They understand, though, that they are under, they’re under scrutiny for having charged 20, 30% type of, of rates on credit cards.

But I do fear that banks are, at the end of the day, in the business of assessing credit worthiness and lending to those who who they deem to be worthy of accessing credit at whatever rate their credit rating supports. So will it cut lending off to those credit card lending off to those who need it? The most? Absolutely. And it would be abrupt and it would be actually cruel.

Caroline Woods If it gets approval. Do you think it will get a congressional approval?

Danielle DiMartino Booth No, I don’t think that anything I don’t think that our Congress, regardless of the party you’re talking about, is going to be voting for, for price fixing.

Caroline Woods So I’m curious, looking at the bank weakness that we’re seeing today. Obviously we also have earnings on tap this week. Would you be a buyer of some of this weakness?

Danielle DiMartino Booth Well, you know, I’m following, credit card charge off rates, bad automobile loans, bad commercial real estate loans. I don’t think we’re quite through that process yet. So my prism into financials this year. Is that because there are conduit to private credit? Because there are lender to private credit, that they’ve got other issues that are going to be, challenging them.

So as a firm cue, I research right now is definitely, worth much more constructive on the financials. And that’s prior to this news of credit cards coming out. I would add, on the credit card front, banks are going to be compelled to at least provide better optics. So even if we do see lower credit card lending rates and and in compliance with kind of societal pressures that will actually reduce banks ability to lend. And again, that’s some of their bread and butter.

Caroline Woods I’m not sure what areas of the market do look appealing to you right now. With the stock market very close to all time highs.

Danielle DiMartino Booth So, we’ve actually got kind of a pair trade going into the year. We we do see some unusual days. You’ve been watching the markets for long enough. Caroline, to appreciate that it’s unusual for the last few years to see the Dow Jones Industrial outperforming the Nasdaq. So the year to the extent that they have been lately, that’s typically a sign, of rotation and of investors looking for the safety of the utilities that happen to kind of represent the Dow.

So we are we’re very favorable on defensive stocks, utilities in particular. And the opposite side of that trade would be those financials that you just asked about.

Caroline Woods And what is your view of the stock market for 2026. We’ve obviously highlighted a lot of reasons for volatility. But even so the market seems pretty resilient at this point. So given that the rotation that we could continue to see, where do you think this market goes from here?

Danielle DiMartino Booth I think I think that this market can easily tread water at very high levels. The power of passive aggressive a passive investing is something that cannot be denied. Every two weeks, millions of Americans contribute to the stock market. The largest stocks are purchased, and those flows seem to, seem to be running the structure of the market. And that’s certainly been the case for many years.

Now. What we do have our eye on, though, especially going into earnings season, is how aggressive, how aggressively companies are going to continue reducing their headcount. And to the extent that there is enough in the way of headcount redemption, as we headcount reduction, excuse me, as baby boomers continue to retire, of course, the last baby boomer retires by 2029, just three. Yet three years from now, at some point, those passive flows could be challenged by there not being enough people contributing to 401 K’s while the fed, presumably after we get past this political circus that we’re in for the fed, while the fed starts to lower interest rates even more.

Caroline Woods Okay, I do want to dig into your economic outlook as well. There’s a lot of talk about the low or low fire economy, especially after some of the jobs data we got last week. You have been sounding the alarm bell on the labor market for quite some time. What’s your view on the jobs picture? Right now, and do you expect it to get better or get worse.

Danielle DiMartino Booth So we usually don’t see cycles, stop in the middle of cycling. And what we’re seeing right now, again, with continued layoff announcements, with bankruptcies at a 15 year highs, S&P reported on that at the end of last week. We see the unemployment rate rising. In fact we see it being at 5% by. But by the time we get the June data out and we’re also seeing something very, very disturbing and that’s that we we’re at recessionary levels of long term unemployment.

With last Friday’s print, of course, we’ve never seen a year of revisions unless you go back to the great financial crisis. And those are real time revisions, not the annual benchmark revisions that we have to wait a long time to get. So we do indeed see the labor recession continuing. There’s a there’s a great disconnect right now between actual GDP and the fact that we’ve had losses of jobs.

It’s it’s strange, but it’s macro economically possible, especially with all the central banks in the world loading up on on gold and trade is disrupted, as it was last year.

Caroline Woods Will you say a jobs recession? Does 5% unemployment indicate that this is an economy that is heading into a recession, even with this disconnect that you’re talking about with GDP?

Danielle DiMartino Booth We’ve never seen data like we’ve seen, as of last Friday, in terms of the payrolls number, we’ve never seen seen any precedents of these types of data without already being in recession. I think that’s what I’m trying to say. So it’s GDP is catching up to the reality of what is already a recession in the labor market.

And certainly if we’re at 5% here in the next few months, that just means that the recession itself is going to be deepening. When you factor in the fact that people’s workweeks are getting cut, their hours are getting cut. Wage disinflation has taken hold. The University of Michigan reported last week. Unprecedented numbers of Americans do not feel that their finances are going to be sufficient to cover their cost of living again, and dating back to 1978, we’ve never seen perceptions.

This power on the part of, of us consumers, which is why now is the worst time in the world, really, for there to be so much disruption and, and such an attack on fed independence, because you need policymakers to be able to focus on what’s happening in the real economy, not what’s happening with some cooked up charges.

Caroline Woods I understand that the stock market is not the economy, but given the fact that this is an economic outlook, that seems pretty dire. According to you, why is there such a disconnect? Why is the stock market near record highs and even on days that it starts off lower at seemingly turning higher?

Danielle DiMartino Booth Well, I’ll go back to the structure, which I cannot control, and that is the structure of passive. And as long as the top 10% of Americans who account for more than 50% of consumption, as long as they’re still in a good place, and of course, they’re in a good place, they own most of the stocks, then you’re going to have that top 10% continue to kick consumption in the United States, continue to enjoy first class travel and spend on discretionary things.

But ask, ask any other industry that is not especially exposed to the highest spenders. We just had the CEO of Heineken stepped down just a year earlier this morning. Many consumer staple, CEOs are losing their jobs. It’s because the other 90% are not getting by. But again, you just said the stock market, the economy, the stock market is the economy for that top 10%.

Caroline Woods Okay. So best advice for investors as we wrap up, given the fact that you say the stock market could what tread water at very high levels for quite some time?

Danielle DiMartino Booth Well, I think that if you’re not appreciative of we’re very young into 2026. Clearly volatility is going to be an everyday mainstay. So if you’re not hedged and if you don’t have some dividend paying cash producing investments, I certainly would hedge your portfolio to the extent that you could, as we anticipate interest rates are going to continue falling.

You’re going to be making less, you and Warren Buffett sitting on 30% cash. You’re going to be making a little bit less on your cash. You might want to consider ways to generate yield, with some safer investments in order to hedge that exposure to the stock market.

Caroline Woods And just finally, when do we see it start to spill over into the stock market and potentially push the market lower?

Danielle DiMartino Booth So I think when you start to see companies, companies not, not making their revenue estimates, that that’s typically when we see the whites of the eyes is is when sales start to start to suffer, not just the bottom line EPS, it can be manipulated, lower bars, etc. when you start to see revenue misses, I think you’ll, you’ll get the attention of the stock market.

That, I certainly think that that’s going to be the case with many consumer discretionary companies. Just given the anecdotal data of my flooded inbox with with crazy sales.

Caroline Woods All right. Anec-data, I like it. Danielle DiMartino Booth CEO and chief strategist for QI research. Thanks so much.

Danielle Di Martino Booth Thank you.