My Expanded Interview with Lance Roberts, Strategist and Economist
Link to MarketWatch article: MarketWatch article
Lance Roberts is a seasoned financial strategist and economist with over 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 his precise, and pragmatic analysis, Roberts provides practical investment guidance using a variety of methods and tools. Through his writing, broadcasts, and public speaking, Roberts has built a reputation as a respected voice for both individual and institutional investors seeking clarity amid market volatility.
MarketWatch: What are the most significant risks or red flags you see in the current 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, such as Powell’s resignation, could prompt the market to reassess forward earnings and lead to a correction in valuation.
MarketWatch: So you are expecting a market correction later this year?
Roberts: I think there's a good setup that the market can rally here for the next month or so on earnings, but August is the deadline on tariffs. If Trump suddenly reimplements 38% tariffs, and if the overbought, extended market deviates from the 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 MA at some point. That would be about 5% or 6% lower than our current level.
MarketWatch: Is there anything happening in the market that 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 keeps me up at night because if you take a look at earnings estimates for Q3 and Q4, they rocket to the moon. They 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 ten 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 (META) due to its growing revenues. We just swapped the portfolio. Apple is an example of a company that I'm trying to avoid right now.
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 again. 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 (NVDA), 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 they are betting that the tariffs won’t exceed 10% or 12%.
MarketWatch: Why do you think the Fed, not tariffs, poses a greater risk to the market right now?
Roberts: The market has a handle on the tariffs. Powell has been saying that tariffs will cause inflation. It may cause inflation in some aspects. For example, a computer might cost more because it was manufactured in China, but those aren’t things you buy every day. However, the reason tariffs aren’t causing a significant surge in CPI is that housing accounts for 40% of it, and tariffs do not impact housing. Its services that affect CPI. In the economy, services account for 80 percent, while manufacturing accounts for 20 percent. The only people paying tariffs are producers of products. Widgets from China sold at Walmart are not a major factor in the CPI.
MarketWatch: What do you think the Fed is getting wrong about the current economic data?
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 okay, 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 cut 25 basis points, and see how things are going.
MarketWatch: What risks does Powell face if he waits too long to cut rates? Shouldn’t he be cutting now?
Roberts: He’s worried that if he 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, Powell is having to cut a lot more aggressively, and markets don’t like that. The market is okay with a controlled 25-point basis point, but they don’t like aggressive cuts. If Powell 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 battle between him and the White House 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.
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, but you must wait for a pullback. It’s very extended. Keep in mind that the companies we'll be talking about ten years from now won't be these guys, just like it was during the .com boom.