AGF Management Limited (AGFB) Earnings Call Transcript & Summary

Good morning, everyone. Welcome to our latest market update. As always, is Kevin McCreadie, AGF's CEO and Chief Investment Officer. And Greg Valliere is with us again, AGF's Chief U.S. Policy Strategist in Washington, D.C., and I'm David Pett, Editor of the AGF Perspectives blog, and your moderator for today's discussion. So as always, I need to cover off a few administrative items related to our virtual event platform. Today's presentation will last no longer than 60 minutes. Those joining us live can submit questions any time during the presentation by opening the Q&A icon found along the side of the presentation screen and questions will be addressed via the end of the webcast. Additional resources for this session can be accessed in your attendee hub at the top of the page under the Resources tab. And finally, please note CE credits may be available for members of our Canadian audience. Okay. Kevin, Greg, thanks for being here. Greg, it's been a while. I hope you've enjoyed your summer and had a bit of time off. Let's get right into things and go through a bit of a market recap, if you will, Kevin, over the last month. There's been lots of action, we were joking yesterday that it's kind of been summer fireworks this year, not summer doldrums. Maybe you can just run us through what you've seen and how you interpret how markets have performed over the last little bit?

Great, David, and thank you, everybody, for joining us this morning. Yes, if you had taken a 2-week break that started on August 1 and came back this Monday, a 2.5-week break. You had looked at the market when you left and looked at it when you got back. And if you had looked at your phone over the time you're on vacation, you would have said nothing's going on because we're about where we were when we left off. If you actually had not been on vacation, you saw this massive drawdown, not massive, but depending on which market you're in, 6% to 10% kind of drawdown between that first week of August to where we were maybe halfway through this period. What was the driver of that? We had a strong start to the year. We get to July, we've a really strong start. And even with the seasonal weakness we typically get in the summer, markets had hung in there. Markets are hung in there over the spring into the summer, even though we've repriced out over that period of time, a bunch of rate cuts, right. And then you get to July and the end of July and a couple of things have happened. One, starts with the Powell testimony on July 31, which is kind of dovish. The next morning, we get a manufacturing report in the U.S., which showed the things that started to weaken. And presumably, the Fed had that report. But they chose basically to say we're not cutting but they did basically start to move you to a September as being a starting point maybe for that, pretty dovish. And then you followed up with that Friday, which was perceived by the market as a weak job report, meaning we only added 108,000 jobs, not the 150-ish that we were looking for. Job report was actually pretty good. But you put that in people said, "Oh, man, we've been too late. The Fed is too late. They should have been cutting and you -- we're going into a recession. And you unravel a lot of risk trades." At the same time, and there's been a lot written about this. Literally coinciding with that has been this yen Carry Trade online, which is where people had borrowed a lot of money in yen. They took their yen, sold it to buy dollars, which drove up the dollar weakened than yen and they took those dollars and bought everything risky. So Bitcoin, Bank Stocks, NVIDIA, you name it, right? And when the Bank of Japan raise rates, folks basically got hit on the backup in the currency and they basically unwound those trades, so they sold all their risky assets, sold their dollars, bought back yen, strengthen the yen, and it became self-fulfilling. So you throw that in the mix. And then look at this recovery period, and it's been about the fact that the data has been not as weak as people thought. So this idea that the recession is imminent, has kind of faded a little bit. And with that, you've seen a pretty good rally in stocks and back to where we started. Data was better on retail sales data on unemployment claims was kind of a little bit more benign than the week before and the week before, which was a bad number, meaning a lot more people claiming unemployment, a lot of that was [ weather ]. And so now that we're back to, okay, maybe we can navigate this -- the soft landing. And so again, markets have fully recovered and highly volatile, and we expect it to be that way for quite some time. That's kind of where we are today.

So Greg, maybe I'll just get you to weigh on -- you have -- you did take a little bit of time off. So just that idea of missing what's been going on, just your impressions of what you've seen throughout the summer in terms of markets themselves. And then we'll get in a little bit more about the U.S. political landscape and the U.S. election.

Well, first of all, I spent 1.5 weeks looking at the wires every single day, looking at what's going on in the U.S., it's such an incredible story. You can't make this stuff up. Obviously, this has been one of the most significant momentum shifts that I've seen in all the many years I've covered politics. I think that the move by Kamala Harris from being down by 3% to being up by, I don't know, 4%, 5%, 6% right now, I think it's largely because some key factors have moved dramatically. Young people finally are enthused, African-Americans who love her and they have gotten her a huge lead now in North Carolina. Women do not love him. Women have been quite harsh in their assessment of Trump and especially his Juvenile soft [ more like insults ] calling Kamala Harris [indiscernible] saying that she's a lunatic. This doesn't help. And I've talked to a lot of Republican since I've gotten back who have said, this is not the way you win the White House to insult your opponent of female opponent. So things have changed dramatically. However, nothing last permanently. And I would say after watching the first couple of nights of the Democrats convention, they have to be careful about getting too cocky. I think they feel that they have this wrapped up that they are going to win easily. And I don't buy that. I think things will level off maybe with a lead of 5, 6 points going into the debate on September 10. Then it gets really serious. If Trump can't come back, I think he has to worry and the Republicans have to worry about problems in the Senate and in the House. Final point I'd make on this is as follows. The markets have done fairly well, as Kevin knows, and we've seen in the last 10 days as the Harris numbers have improved, the markets have improved as well. I think there's probably a feeling within the markets that there's a situation where if there were to be a victory by Kamala Harris, I don't think the Democrats are necessarily going to do that well in the House and in the Senate. So she could win the White House but she's not going to get a radical agenda through. And I think the markets are beginning to feel that's a more likely but acceptable scenario.

Yes. One of the things, Greg, to touch on that, if you remember the Republican convention, right, and this is post the attempt of the assassination of Trump, the big boost he had going into that, the market started to say, wow, this -- and this is before Biden had stepped aside. We talked about things that seem so far ago, but it was only a few weeks ago. And the lead was significantly in Trump's favor, I think 70-30, if it would have been Biden and Trump. And the market has started to look at very specific sector bets that would be favorable to a Trump candidacy, or certainly one that would be Trump in carrying both those houses. I think to your point now with this being back to almost tied and flipped actually, markets are repriced. The markets themselves are up at a level again, but the sector differences have actually started to dissipate that we saw. It's not obvious that the "Trump Trade" will prevail.

Yes, I think that's right. And I think there's still great anxiety on the part of the public over the state of the economy. The economy looks like it's softening a bit. You probably have a better feel for that than I do, Kevin. But I think that the Fed is probably going to have to apply some medicine. People are worried about the labor market getting soft. So these are all things you would think would help Trump quite a bit. Yet Trump wasn't just talk about Kamala Harris being a lunatic. It makes no sense, in my opinion, for Trump not to go after real issues. Immigration, inflation, things like that are what could get in back in the race.

So maybe let's get into some of those real issues here right now and talk about beyond that mudslinging that we're seeing. What are some of the things that investors need to be aware of as we get closer to the date? Maybe let's start with the economy. How important is the economy and its strength in the U.S. to the outcome of the U.S. election?

Yes. So let me give a frame in where we are and then maybe I'll turn that to Greg to how significant so that -- the things are clearly softening. And while I said that the data has come in a little better recently, it's coming in better than people anticipated, but the anticipation was at a pretty weak level. So whether it be the jobs market, which the Fed is obviously concerned about, which labor market had been too tight, you're getting evidence this morning. And again, it's a revision of the past year through March. But the economy overcounted about 800,000 jobs. So clearly, there's going to be an argument made here that the Fed is behind the curve and they should be cutting immediately. But you look at most of the data, it is clearly softening. And we know and we've talked about it on this call for 2 years, there is about an 18- to 24-month lag effect to when you start raising rates to starts to bite. And you're starting to see that. And you're seeing it in just anecdotal evidence, we can look at retailers. Think of things like Home Depot and Lowe's, which are big ticket items typically, you remodel your house. Those sales comparatively year-over-year are down almost 5%. And you contrast that to the places like Walmart and Target, which are selling groceries today, and real necessities, food on the table and you're seeing the consumer shift down into a lower price points on things, so discretionary items have been basically pulled back on and the necessities are basically what is driving sales. So again another evidence of weakness. We can see it in the credit card data with delinquencies, we could see it starting to build past levels of 2019. And it's going to be a little different everywhere in the world. Canada is going to be different than Europe than the U.S. But by and large all of those economies are now starting to soften. And so whether the question is really can recessions be avoided, but there is clearly a weakening path. If you wait too long and that will be the hysteria that the market is going to start to demand, it is that you were going to push into recession. If you go back to my opening comments, the drawdown that we saw in those first couple of weeks was things are really softening quick and the Fed is doing nothing. We're about to potentially have that same narrative play out here, you're seeing a massive rally and the bond market today since it's this revision of those payrolls came out again. We had too many jobs -- we probably had 800,000 more jobs in the Fed. Therefore, the Fed's delayed -- bond market is becoming safe haven. It won't surprise me if the equity market flips over by the end of the day a little bit. So again things are weakening around us, it will have impacts on the market. I guess a question for Greg, though, in histories in the past where do recessions count when it comes to the presidential elections?

Well, it's a crucial question, Kevin, I think in the old days when news didn't travel as quickly, and the old days usually by the 4 July or certainly by Labor Day opinions had hardened and didn't change that much, there been a couple of exceptions Hubert Humphrey in 1968 is what. But I would say that the American consumer is not going to change that much. Here we are now getting into late August. And I think these attitudes have hardened. So you could have Harris winning and taking office with an economy that's very weak. And I think she would then have to put quite a bit of pressure on the Fed. I think that Jerome Powell then becomes a crucial player. But it looks to me as if these attitudes are on the part of consumers have definitely hardened. And there are other issues that are not economic or market issues. A portion, for example, will continue to be a very, very big story in the U.S. And the whole issue of -- legalities by Trump will be an issue as well. But I think in terms of the economy, it's going to be really hard to change attitudes.

As to David, maybe -- let me pick up with some of the events that will lead us into September and this idea of where the Fed has to cut rates and what the implications of that are. Obviously, if the Fed -- the market is saying to the Fed today, not only you need to do 25 basis points in September, you need to do more than that. So there's a fair probability built in that they should go to 50 basis points. We're going to get a reading of the July 31 meeting this afternoon. It's called the FOMC minutes. They come back and tell you how the deliberations went. But that will occur this afternoon. In that, you'll have to look for. Did they really think that they should be cutting in July? That will be question one. That will spook some people if there's a debate that some members said they should. And the second is if the other side of that, if they truly discount it, they have to go 50 basis points. I think 50, if you think about this, Bank of Canada has gone 25, 25 and looks to be that they'll cut 25 in September. Bank of England has taken 25 and said pause. The ECB has taken 25 and pause. If the U.S. is to jump out and do 50 right out of the gate, it will spook some people, I think. And I think leading into that, you have this meeting that starts tomorrow in Jackson Hole where the central bankers around the world will get together, Powell will speak on Friday. He's got 2 data points that he has to worry about that he doesn't know that are in front of him between here, Jackson Hole and when the Fed meets, which is the CPI report for August and the jobs report for August. So it's hard for anyone to say that he is going to change tone on Friday. He may signal that yes, we're probably getting ready to cut, but the debate around how big and how many and how they're consecutive. I think he's got very little room to change the tone here. And so I think that will create some market volatility. And then let me put the third thing into this, which is if he does cut rates, even 25 basis points in September, the Trump campaign is going to hell that they are trying to help the Democrats. If they don't do 50, parts of the Democratic party are going to hell that they're behind the curve and they're trying to -- not doing enough to help the economy. So the Fed is -- and Greg and I have talked a lot about it on this call and other places, the Fed is not a political animal. But whatever they do, will be perceived by some as being playing to one hand or the other.

And I would just add, Kevin, this sugar high that we're seeing in Chicago right now, the sense of jubilation is going to maybe hit hard reality this fall when they do see economic data not looking all that good. I think that it's a dichotomy, I think a lot of American voters will say, "I don't get it." The economy is clearly to me, is softening, and you guys are jubilant. So if I were advising the Democrats for the next 2 nights, I would tell them to cool it. I would tell him not to be quite as euphoric because being euphoric to me is not valid.

Okay. In addition to the -- or beyond the broader economy, obviously, being a big issue and perhaps a wedge issue for the election, hoping that you both can articulate what other issues that may be, again, aren't being talked about because of all the mudslinging, what other issues will have a potentially large impact on investors and markets going forward and whether this is the deficits or potential tariffs. So that kind of line of thinking. So maybe Kevin, I'll start with you, and I'll go to you after that, Greg.

I'm going to start with the thing that Greg has talked a lot about, which is the thing that I worry the most about, which is, we're now 3-plus months away, 90-some-odd days, right? You got -- I don't know, Greg, 180 million people will go to vote on November 5 to vote, 3, 4 states and maybe 50,000 people will determine who wins. And the policies for the rest of the world, depending upon the winner, we can come back to this, I don't want to belabor it now, David, but we should talk about Ukraine, we should talk about in the Middle East. Those are real issues that are still bubbling and burning and were kind of distracted from them. But if this stays this close, and it's truly a handful of states and not a lot of people. As Greg says, the next day, which coincidentally is when the Fed next meets after September, by the way, is a day after the election. You could see people pointing fingers on both sides about recounts. You can see people talking about irregularities. And as we've said many times in market, there's just not like that kind of uncertainty. And especially if you can't find a winner, and it ends up in courts and court cases in multiple states that last another week or so many days, it will not be good for this market. So that's the biggest -- when I say the election risk, I can come back down to the things that will matter once we have an outcome, which is deficits, Ukraine and others. I think the -- for me, the path to here in November is that this does not widen out where you can actually see a contested outcome is off the table, I think, is going to create a lot of volatility.

And I would say that you've got to look at 2 or 3 really crucial states. Pennsylvania, Michigan, Wisconsin, to see if we do have something close to a tie. And I agree with Kevin. I think a tie or something very close to a tie is not going to be well received with all sorts of charges of illegalities. A couple of other things I would throw out that would worry me a bit. In all the euphoria, in both parties, conventions, the Republicans in Milwaukee and the Democrats now in Chicago, no one's even mentioned the word budget deficit. No one's talked about the enormity of our debt, which is up to about $34 trillion right now. Neither party has any appetite to cut spending or certainly not to raise taxes. In fact, we'll have a debate this fall about extending the Trump tax cuts, which for -- a lot of our American friends is the big, big story that you could see a huge fights over taxes. And there's another fight as well coming and that's continued protectionism. I don't see much sentiment in either party to lighten up on tariffs. So you've got deficits, a possible tie, protectionism. The one wild card and maybe we can spend a little bit of time on this, David, is the one wildcard as you mentioned, I think, is Ukraine. The fact that Ukrainian drones got close to Moscow last night that's an incredible story. I mean the Russian shot them all down, but Zelinsky is showing an appetite to go right into Western Russia. I think that with all the other news, this story has been overlooked.

Yes, Greg, let me touch on that. I think that there's a view here. The fact that this -- never mind the drones, but the Ukraine's have now taken a fair amount of land in Russia, and did not tell the West apparently from what we have heard and you've reported. And if you think about that, it really feels like if it's about this election. If there's Zelinsky and you fear that Trump was going to win when you were planning this idea, you want to have some land to trade if, in fact, you're going to be forced into a deal. There's a lot of this that if we sit here coming February, when there's a new -- there will be a new president seated, that will determine the fate of what that negotiation, I think, looks like. So I think that plays into some of the aggressiveness that's going on in the Ukraine, right, at this point.

And I think also it would be naive to think we're going to get a genuine breakthrough in Gaza. It seems like whenever we get close, our Secretary of State Blinken, realizes that the cabinet, the [indiscernible] cabinet is so radical and so opposed to any kind of a deal that we just keep spinning our wheels. I do worry about that. And I also worry about continued reports that the Iranians are stirring the pot, funding obviously Hamas, funding the Houthis, funding [indiscernible]. So I would say that the fact that the Iranians are working [indiscernible] on a crude nuclear bomb is another story as well. So I would think geopolitics is going to be a route awakening for Kamala Harris if she actually does win.

Maybe we can just go back to the U.S. election again. And Greg, you really summarize some of the issues that are out there for investors. I'll start with you, and maybe, Kevin, you can weigh in on this. But just curious to know if you compare what the Democrats are saying and the Republicans are saying, is there any common ground at all in terms of what they're saying in terms of issues or policy that they might enact, or is it really -- we'll do this, and they're not going to do this? Like how do this visit on that front?

Right now, 3 months out, you're just going to get red meat from both sides. But both sides are going to flail at each other and claim the other side is corrupt and no good and rotten. And that's to be expected. The issue, as you alluded to, would come after the election. Could we start to see some kind of reproach math between the parties. I would not at all be surprised if Kamala Harris win on -- in late winter, she won, went on to trip to China or Japan to talk to countries about a wide range of issues. Frankly, I think she first may go to Canada, where she spent much of her teenage years, and she reportedly has very warm feelings about Canada. And I think that, that is going to be a very -- a feel-good story. But I think on a lot of other things, yes, there will be an attempt by both parties to get along, but I'm a cynic, and I look at things like do we get a new Supreme Court fight? Do we get a new tax fight? I mean, everywhere you look, you see huge fights without any likely compromise.

Yes. So let me touch on that. I think there is one thing and it's a word, it's China. There has been probably -- the only place I've seen Unity around these 2 parties is around China and various degrees of anticipate toward it. If the Trump administration is elected, they're talking about a massive hike in these tariffs that are in place. There's a debate about whether those will truly be inflationary. Half of the things we import from China end up as an intermediary good and something else that we produce in the U.S. So if that's the case, when you put a massive tariff on that goods producer is either going to have to raise his prices which would be inflationary at the first instance or 2, beat that increased cost in his profits, which would be bad for profits, therefore, bad for stocks. There's a debate about that because they put those tariffs in place for the first time. But then if you think about it, we were at a much lower level. We're talking about big numbers in terms of what is being thrown around for the Trump team. On the Harris-Biden side, it will be Harris, there's been no willingness to take off the existing tariffs. So I think there's -- that -- to the degree that they move higher, it's going to have an impact on the economy. I'd say the second one is the Trump team wants a weak dollar. I'd be careful what you wish for. If your dollar is weaker, and you have to buy things around the world with a weaker dollar, it's going to cost you more, right? And that cost, again and could be inflationary. So if you're thinking about an economy is weakening as we head into this, some of these will exacerbate some of the mandates that the Fed has to deal with, which is, again, 2 things, full employment and a level of inflation [indiscernible]. So I'd say there are some similarities with things like trade, but there are going to be very big differences as well. I'd say the last one, Greg, which I touched on is, I think there is going to be a waning it and there has been a waning view of support for Ukraine. And to the extreme level, with Trump saying day 1, I'm going to basically force it to in. And at the other end, it's -- there's probably not a big package coming again if this is continuing on. So there will probably be some kind of brokerage settlement next year because of, again, no real agreement that we should continue or can afford to continue supporting at the same level. And that's consistent with not just the U.S., but frankly, the ECB as well.

I think there's always a fascinating angle right before an election about a surprise. We used to call it the October surprise, we could get one again, maybe Vladimir Putin decides, he's got to find himself an exit strategy or find an intermediary, maybe aired again with Turkey or somebody to be an intermediary to see if they can bring this horrible war to an end, there could be some domestic regional stories. I worry a little bit about a rail strike that could start in Canada and last for quite some time. So there's a twist and a turn that nobody has predicted. Maybe there's a big hurricane in South Florida, which is not uncommon in September. So there will be wild cards, which is a major reason why I'm reluctant to make a flat out prediction that she's going to win. I've got a lot of friends here in Washington who are making the prediction that she has to win and that she'll take the house and senate with her. My attitude is beware of the wildcards.

And for everybody who doesn't have subscription to Capital insights and Greg's daily musings, that's where you're going to find it about these wildcards. So subscribe. And with that, let's get to some questions from everybody who's listening in. First question here is about seasonal weakness. So the question is August and September usually kind of a rough time for markets, not so much so far in August, now that we've got the sort of this rebound. The question is might we see some roughness, some volatility in September, October. So a little later than usual. And the follow-up to that is kind of how do you position yourself within that if that is the scenario that might unfold? So Kevin, I'll go to you with this one.

Yes. I think, listen, as I've said, if you went away and didn't look at your phone for 2 weeks, things look like they've been benign. And they have not been. We've incredible volatility. VIX, which is a measure of forward-looking where people think how volatile things are going to be in the immediate future, right? It broke through the levels that we haven't seen in decades in 2 days on this fear of a recession. There are other fears out there, right? The AI trade, which has been a great trade, and we've talked about the productivity that will come from generative AI and other things. The hype always comes first before the productivity shows up. And we had talked about this on this podcast that we did yesterday, David, right? And so there is some questioning around some of the big guys who've been the buyers. There's about 5 or 6 folks who buy the stuff that drives AI. We can call them the hyperscalers, so I think Microsoft, Google, Meta, et cetera, Amazon. When one of them basically said, hey, on a conference call when their earnings came out and said, "Hey, you know what, you guys are spending all this money, where is the return." And so we estimate, there's been a $50 billion spent on buying things that will enable this, with about $3 billion of revenue. That will become a focus as we move through this NVIDIA earnings release next week, which could create volatility unrelated to the markets. You have these 4 data points starting with Jackson Hole, CPI, jobs and then the Fed meeting, which is going to create -- everyone will look at every one of these data points now with a microscope to see is this a recession trade? Or should we be thinking about a soft landing? So volatility, well it seems like it hasn't been there has been there. And so I'd say, be careful. What has propped up the market the last couple of weeks as well as companies report earnings, they come out of the blackout and they can buy back their stocks. When companies end the quarter, they go into a blackout and their buybacks have to seek. So this is a little bit of in -- the recent rally has been some of that as well. But I would tell you, the seasonality that we typically see will be with us certainly into September as we have to deal with some of these data points around the Fed. And as Greg said, the honeymoon after this democratic election will wane. And there's a lot of -- there's just a lot of things that are going to happen between here and November. So certainly, August, while it feels benign, has not been in September, I don't expect will be either.

Okay. Next question for you, Greg. We've talked a lot about the presidential race. There's other races going on, right? Just maybe a sum up on what you're seeing on that front and maybe how those outcomes make your way?

There are some senates now who say we are in the permanent campaign. One campaign ends the next day, the next campaign begins. So there are other campaigns, some very big ones. Let me take the Senate first. The Senate is 51-49 for the Democrats, a narrow majority for Schumer of New York. I think there's a decent chance maybe 65%, 70% chance that the Republicans will regain control of the Senate. There are 2 or 3 seats that look almost certain to fall, democratic seats, West Virginia, in particular, where I think Joe mentioned is almost certainly going to lose; Montana, where a Democrat is probably going to lose. And then there's 2 or 3 others. And I'll be damned if I can find 1 Republican incentive seat that is vulnerable. Maybe Scott of Florida, maybe Ted cruise of Texas, but I wouldn't bet against them. So you've got the Republicans not losing any seats while picking up 2, 3, maybe even 4. So I do think they have a very good chance of taking the Senate. The House is a tougher call. The new house speaker Johnson has had kind of a rough year. He's still a rookie. He is members who are catching tremendous heat back home on a portion in state after state, voters are saying, no, we have to have an exception for people who have suffered from rate or [indiscernible] these horrible conditions that should allow for an exception, but a lot of the Republicans are refusing to consider that. That may hurt them in the House. If I were forced to bet, I would bet that they only have a 4-seat majority, they're unprecedented in its tightness. If I were to make a bet, I'd bet maybe the house flips, maybe the Democrats have a net gain of 5 or 6 or 7. But you get my point here, and that is in both houses, it is going to be razor, razor thin. And I think that's a major reason why I'm not losing sleep over Kamala Harris because she's not going to be able to get a radical agenda through because she's not going to have the votes in either the Senate or the House.

Okay. Great. Thanks for that Greg. So another question just came in. I'll give this to you, Kevin. So generally, overall thoughts on the equity market, do you see markets continue to rally and rise through the remainder of the year. And then within that question, we've talked a lot about that dynamic between growth and value that we've seen over the last couple of years now. Will that continue? Or will we see more of a rotation that maybe favors value in smaller cap names going forward?

Yes. We've seen a massive rotation. If you actually stop the clock kind of year-to-date middle of July before even this Fed meeting, right? The gap between the capital -- cap-weighted indices into an equal-weighted indices and use the S&P, was about 10% to 12%, meaning the cap weighted was that much higher than the average stock. July 10 to that, August 5 kind of middle of this drawdown. In July 10, I used is sort of when we start to see this first sign of a rotation. This was one big tech, this idea that Google was challenged on its spending and where the payback was. And you started to see people talk about the Fed to start to cut rates, right? This is before the data actually got weak. And you saw a massive rotation. From July 10 to like August 6, the cap-weighted industry was down 7%. The S&P was down 7% from that period of time. The equal weighted was flat. You saw a big cap tax, I think the NASDAQ 100 over that same period of time was down 12.5% and Russell 2000, the small-cap index was flat. So we've had periods of this rotation. What's happening now because when they're -- and we talk a lot about this on these calls, when you feel uncertain about the future, you crowd into the things you know, right? And in different periods of times we call them the staples, right? If you didn't -- if you were uncertain about the world, you bought Colgate, Palmolive, you've bought Procter & Gamble, right, because people had to buy those things every day, recession or not. The average kid in the Street doesn't even know that Colgate, Palmolive or Procter & Gamble. But they know what Google does, Apple does. They know what Microsoft does. So when we have this period of uncertainty, we're crowding back into those things. Very big things. They're great companies, great quality, great earnings streams, great cash flows, they may be pricing. So you're going to see that until we get the certainty around the recession and certainly around the economy. The true rotation will not take place until you start to cut rates aggressively. And I just caution and remind people, if you're cutting rates aggressively, I think 50 basis points in September followed up by another 50 after the election because there's a lot of volatility, you're going to spook people. And in the first instance, equities are going to get hit. As a point in time, we actually show that, that rate cutting is actually doing something slowly that the degradation of the economy that you're going to see that rotation. I'd say last point. This quarter was the first quarter -- the real earnings driver in the last year has been that MAG 7, the 7 names of the 500. This is the first quarter, the 493 have actually shown decent earnings growth. So again, if you get to this rate cutting thing in the first instances is probably not good for equities, but once you're into it and you see that you're actually doing something to lessen the impact on demand, you're going to see that rotation take hold, particularly with the small cap. So I'd say it's early on that trade today. And the last question is, where do we go from here? We're going to see a lot of volatility. I prepare yourself for some drawdowns in between here and the election. Our guess is that you actually finish the year higher, but that's going to be getting through this period of uncertainty. If, in fact, this election winds out by a big number because it's something that Greg just said, somebody has an advantage, somebody makes a mistake, the market will breeze through that maybe because they can see that this contested idea is off the table, they can also start to place bets on different sectors. If it stays narrow you probably have a lot of volatility, but you probably end the year higher because by the end of December, there will be some relief that there will be certainty about who the next president will be and what those policies will be.

Okay. One more question at least, we might be able to get into, Greg, back to this idea that there probably is -- the idea of a clean sweep in Washington is probably not something in the cards right now. Does that also give you some comfort when you think of Trump's agenda as well? You mentioned Harris' agenda. But does it go both ways on that front?

Absolutely. I think it's unlikely that Trump would be able to have a sweep. And a lot of his ideas are viewed as radical. I mean we could talk about Kamala Harris having an activist agenda. She's a liberal from California. That's what they do out there. But at the same time, I think some of the Trump ideas, this project 2025 from the Heritage Foundation that has all sorts of radical ways to restructure government is viewed with some real anxiety. And I think it's something that would probably hurt Trump. We'll get to a point on November 1 with 4, 5 days to go. We'll get to a point where any story can move a state by a point or 2. It can -- any little story can move New Hampshire, which has 3 electoral votes. So I think this project '25 is something that you're not going to hear Trump talk much about because he realizes it could be a liability for him.

Okay. I think we're probably running a little short on time. So what I'm going to do guys is I'm going to give you guys an opportunity to provide some final thoughts. Greg, maybe just a quick one from you and then Kevin, I'll get you to close things out for us.

I've said all year long that it was time for fresh blood in the U.S., and I thought all along, it was going to be Nikki Haley. Little did I know it wasn't Nikki Haley, the fresh blood comes from Kamala Harris. And I think it will be fascinating to watch. I think she will get a cold dose of reality when she realized that she can't get a lot of her agenda through Congress. And I think once she realizes that, she's going to have to resign herself to making most of her big impact on regulatory policy, whether it's Gary Gessler, the infamous regulator, there are plenty of regulators who would like to take over the Federal Trade Commission, things like that. So she might have some influence there. But I think on our legislative policies, there's going to be a learning curve even though she has served in the Senate. But last point, it continues to astonish me that no one gives a damn about the deficit. It's -- we talked about it earlier. It's an issue that everyone is seemingly oblivious to.

Okay. Great. Thank you for that Greg. And Kevin, I'll let you finish things off for us.

Yes. I think we're going to be involve with path. As I said, I think the equity markets are going to be choppy in here. Ultimately, we may have a bit of a correction, but we may finish the year higher depending upon, again, the path of the economy, which we think is actually weakening but not in a recession yet. Obviously, what the Fed does will be the main story for September for markets between now and then. It's like I said, 4 data points; provide a speech is the first. Two big data points, CPI and the jobs report coming on in the heels of that and then obviously what the Fed says when they meet in September. There won't be an October meeting, so the next one will be the day after the election. If you think that we're finally in a place where -- whether it's 25, it may not be 50, but you're probably getting 25 basis points in September. It's okay to own -- love your bond portfolio here. Again, there's enough coupon now that you're going to get some income off of that. And if they cut rates aggressively because things are weakening, you'll get a lot of return from that as well as your bond prices are going to go up to, don't fear your bond portfolio here. We do own a little cash and we own some hedges to your portfolio if you can own some things that give you an alternative to equity such as an anti-beta ETF or something of that nature, something that hedges some of the downside risk in this volatile patch. But I think -- for the first time, I said the U.S. being behind the curve, I think, is going to be a narrative that we're going to have to watch every data point to see in fact that the U.S. has been. But we're clearly now in a place where the ECB, the Bank of England and the Bank of Canada are all now with the U.S. Fed marching toward easing this restrictive place we've been. The question will then turn to how aggressively are they at a month-to-month meeting-to-meeting cuts? And how many between now and the next year. But obviously, I'd say hedging out equity market risk through an allocation of your equity -- your fixed income portfolio or cash right now is going to help you in the next few months.

All right. Great job, gentlemen. That's a wrap. And as always, thanks to everyone tuning in today. On behalf of Kevin and Greg, we appreciate your time and support, and we look forward to sharing our insights with you again next month. Before you go, please make sure to click the ad session button in your attendee hub to register for our upcoming market update events, including our next installment, taking place on September 18. To complete your CE credits today, please complete the survey available to the right of your screen or at the top of the home page in your attendee hub, and note you may only submit answers for your survey once. However, you may have the opportunity to go back and edit responses if needed. Have a great day, everybody.

So long, David. Thanks.