Market Q & A With Portfolio Manager, Jason Isaac

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

Jason: We’re going through an idiosyncratic period when many of our portfolio positions, which are high-quality names, sold off, while a bunch of low-quality stocks went up. This was driven by a market rotation in February where investors started selling winners and holding onto laggards, expecting only a mild correction rather than a full downturn.

We do tend to see this type of reversal every few years and I do see it as temporary rather than as part of a broader cycle.

Having said that, it looks like retail investors are still buying the dip, which is actually somewhat worrying. We haven’t yet seen the kind of capitulation you’d expect to see near a true market bottom. Until we see broader recognition of the risks, we are staying defensive. This could all resolve fairly quickly, but until then, we wait.

The bigger worry for me right now is stagflation, which is slowing growth paired with sticky inflation. Market participants are exhausted, and without clarity on tariffs, things could deteriorate further. I put the chance of breaking above 5,700 on the S&P 500 at exactly zero without a rock-solid, consistent tariff policy. The longer this drags on, the higher the odds that something breaks.

So for now, we’re playing defense. 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: We’re in a clear downtrend, trading well below the 200-day moving average. I don’t see us breaking above that unless there’s real policy clarity, particularly around industrial policy and trade. Without that, the market’s trajectory remains uncertain. A short-term rally is possible, but structurally, we’re not in a really healthy place yet.

And part of the problem is that current policy is sending mixed signals. On the one hand, you’ve got the rollout of tariffs. On the other, you’ve got this “Everything Needs to Be Made in America” stance. Those two ideas don’t actually align.

A Cato Institute poll found that 80% of Americans said the country would be better off with more manufacturing jobs, but only 25% said they personally would be better off working in a factory. Nobody wants to do the work.

Simply put, tariffs will be a supply-side stagflationary shock. While it’s politically favorable to try and reshore production, the issue is that many of these supply chain systems are labour-intensive, low-value-add processes that just do not exist in the continental US, and bringing them back will come at the cost of advanced, higher-value activities. Ultimately, what this means is lower productivity, lower growth, and higher inflation.

This is not just an abstract economic theory. This will hit the lives of ordinary Americans very hard. For example, the majority of air conditioners, mobile phones, and shoes are made in China. You’ve probably heard that an iPhone that costs around $1,200 to produce in China would cost about $3,200 if it were made and assembled entirely in the U.S. The math just doesn’t add up.

One final point: the tariff proceeds go directly to the US government, not the companies who sell or produce the products, and this is why economists call it a tax. In the end, I don’t think the US consumer will put up with the magnitude of these price increases, which is why I think this can all turn around rather quickly.

Q: What shorter-term signals are you seeing?

Jason: Consumer Discretionary has started to roll over, which is typically a sign of economic weakness. That, combined with small-time traders getting more aggressive, adds to my caution. I’d like to see Discretionary outperform before getting more constructive.

And short-term sentiment is too optimistic. Small-time traders have actually increased their exposure, which usually precedes more downside. Until we see them running for the exits instead of rushing in, I remain skeptical.

Any weakness we’re seeing right now feels like a head fake, not a real bottom just yet.

Q. Any advice for investors right now?

Jason: If you’re thinking of heading to cash, remember market corrections don’t always signal recessions. Research from Raymond James shows that when markets drop 20% from their highs, it only leads to a recession 40% of the time. The other 60% of the time is a false alarm. Even if we do see a mild recession, history suggests it’s a 24% drop with a 27-month recovery. And if there’s no recession, one-year forward returns often come in at around +20% to +30%.

In my opinion, if you’ve got a 10-year time horizon, you might look back and think this was the best time to invest. If you’ve got a lump sum and you feel uneasy about investing it all today, think about diversifying across time. Maybe you break it up into three equal investments and space them six or eight weeks apart.

And I’ll say this again: this is when you really need active management. When tech stocks were driving everything, maybe you could get away with an S&P 500 ETF, but now things are a little more complicated. If you buy a Europe ETF, you’re going to get a bunch of great names and a lot of crappy ones too. As this market plays out, you’re going to want a manager that can use a go-anywhere stock-picking mandate to add real value.

Bottom line, it’s tough out there, but staying invested and staying selective is how you win over the long haul.

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 to the Kipling Funds and sub-advisor to certain NCM Funds. CIC is also the sub-advisor to 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 and such information should not be relied upon for providing such advice. The communication may contain forward-looking statements which are not guarantees of future performance. Forward-looking statements involve inherent risk and uncertainties, so it is possible that predictions, forecasts, projections and other forward-looking statements will 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 in this communication and may alter such trading strategies or unwind such positions at any time without notice or liability. CPWM, CIC and NCM are under common ownership of Cumberland Partners Ltd. Please contact your Portfolio Manager and refer to the offering documents for additional information.