The Current Investment Landscape: Insights from Jason Isaac

Q: What’s the overall investment picture right now?

Jason: We’re in a unique period. Many high-quality portfolio positions have sold off, while low-quality stocks have increased in value. This shift began in February, driven by a market rotation. Investors started selling their winners and clinging to laggards, expecting only a mild correction instead of a full downturn.

This type of reversal occurs every few years. I see it as temporary rather than a sign of a broader cycle. However, retail investors continue to buy the dip, which is a cause for concern. We have yet to see the sort of capitulation that typically indicates a true market bottom. Until there is broader recognition of the risks, we remain defensive. This situation could resolve quickly, but for now, we wait.

The Stagflation Concern

The greater worry for me is stagflation—when growth slows down while inflation remains stubbornly high. Market participants appear exhausted. Without clarity on tariffs, the situation may worsen. I firmly believe that the chance of the S&P 500 breaking above 5,700 is zero without a strong and consistent tariff policy. The longer this uncertainty persists, the greater the chances that something will break.

For now, our strategy is defensive. I’m clearing the puck out of the zone and waiting for a cleaner setup.

Q: What’s the long-term market momentum telling you?

Jason: Long-term indicators show we're in a clear downtrend, trading well below the 200-day moving average. I don’t foresee a break above that without genuine policy clarity, especially around trade and industrial policy. The market’s trajectory remains uncertain. While a short-term rally is possible, we aren’t in a healthy place structurally yet.

Part of the problem is that current policies send mixed signals. We have the rollout of tariffs on one hand and an “Everything Needs to Be Made in America” stance on the other. These two ideas don’t align effectively.

A Cato Institute poll showed that while 80% of Americans believe more manufacturing jobs would benefit the country, only 25% think they would personally benefit from working in a factory. This reveals a fundamental mismatch.

Simply put, tariffs will result in a supply-side stagflationary shock. Although there’s political favor in reshoring production, many supply chain processes are labor-intensive and low-value-add. These processes aren’t prevalent in the continental U.S., and bringing them back will come at the expense of advanced, higher-value activities. This shift will ultimately lead to lower productivity, growth, and rising inflation.

Real-World Implications

This isn’t just an abstract economic theory. It will affect the everyday lives of Americans. For instance, most air conditioners, mobile phones, and shoes are produced in China. An iPhone that costs about $1,200 to produce in China would cost around $3,200 to produce and assemble entirely in the U.S. The figures simply don’t add up.

Furthermore, tariff proceeds go directly to the U.S. government and not to the companies producing the goods, which is why economists refer to it as a tax. I believe that U.S. consumers will not tolerate such significant price increases, suggesting that this trend could change fairly quickly.

Q: What shorter-term signals are you seeing?

Jason: Consumer discretionary spending has begun to roll over. This trend typically indicates economic weakness. Coupled with aggressive behavior from smaller traders, it adds to my caution. I want to see discretionary stocks outperform before I get more constructive.

Short-term sentiment feels overly optimistic. Small traders have increased their exposure, which often signals that downside may follow. Until I observe a rush to the exits from these investors, I’ll remain skeptical.

Any weaknesses we’re observing currently appear to be temporary illusions, not genuine bottoms.

Advice for Investors

Q: Any advice for investors right now?

Jason: If you’re considering cashing out, remember that market corrections don’t always lead to recessions. Research from Raymond James indicates that when markets drop 20% from their peaks, it results in a recession only 40% of the time. In the other 60% of cases, it’s a false alarm. Even if a mild recession occurs, history suggests a 24% decline with a subsequent recovery of 27 months. And if there’s no recession, one-year forward returns often hover around +20% to +30%.

If you have a 10-year investment horizon, you may ultimately look back on this period as the best time to invest. If you possess a lump sum but feel uneasy about investing it all at once, consider diversifying over time. For example, you could divide it into three equal investments and space them six to eight weeks apart.

I want to reiterate: active management is essential right now. When tech stocks drove the market, an S&P 500 ETF might have sufficed. But the current landscape is more complicated. If you buy a Europe ETF, it contains both quality names and underperformers. As this market plays out, it’s crucial to have a manager who can effectively navigate this with a go-anywhere stock-picking mandate.

In summary, conditions are tough right now, but the key to long-term success lies in staying invested while remaining selective.

Jason Isaac is a Portfolio Manager with Cumberland Investment Counsel Inc. (CIC). Cumberland and Cumberland Private Wealth refer to Cumberland Private Wealth Management Inc. (CPWM) and Cumberland Investment Counsel Inc. (CIC). NCM Asset Management Ltd. (NCM) is the Investment Fund Manager, and CIC is the Portfolio Manager for the Kipling Funds and a sub-advisor to certain NCM Funds. CIC is also a sub-advisor for certain CPWM investment mandates. This communication is for informational purposes only and is not intended to provide legal, accounting, tax, investment, financial, or other advice; therefore, it should not be relied upon for such advice. The communication may contain forward-looking statements that are not guarantees of future performance. Forward-looking statements involve inherent risks and uncertainties, so predictions, forecasts, projections, and other forward-looking statements may not be achieved. All opinions in forward-looking statements are subject to change without notice. Past performance does not guarantee future results. CPWM and CIC may engage in trading strategies or hold long or short positions in any of the securities discussed and can alter those strategies at any time without notice or liability. CPWM, CIC, and NCM are under common ownership of Cumberland Partners Ltd. Please contact your Portfolio Manager for further information.