Verdence Capital’s CIO Warns of Market Risks Ahead of Tariff Deadline
The financial market is experiencing a period of heightened caution as the August 1, 2023, U.S. trade deadline approaches. Megan Horneman, Chief Investment Officer of Verdence Capital Advisors, which manages $4.1 billion in assets, expressed concerns over the current market dynamics during her appearance on CNBC’s “Fast Money.” Horneman believes that the market is overly optimistic, suggesting that it is “pricing in the perfect situation.”
Horneman pointed to several factors contributing to this sentiment, including uncertainties surrounding the impending tariffs, Federal Reserve policy, and technical indicators suggesting that growth stocks, particularly in the technology sector, may be overbought. She stated, “Once we see that [rate cuts] might be priced off the table, coinciding with the fact that we’re not quite sure what’s going to happen with the tariff perspective, I think you can see a bit of a valuation correction.”
Concerns about overvaluation are particularly relevant in the context of the current rally in growth stocks, which include major players in the tech industry. Horneman, a former senior investment strategist at Deutsche Bank, cautioned that these conditions could disrupt the market’s upward momentum.
Market Performance and Investor Strategy
Despite her short-term apprehensions, Horneman maintains a bullish outlook for the long term, viewing market pullbacks as potential buying opportunities. She highlighted international stocks as one of her preferred investments during times of market weakness. “Right now, they’re expensive from a valuation perspective,” Horneman noted, “but cheap compared to the U.S. They’ve been underloved for way too long, and I think you’re seeing some of that rotation just begin. I think that can continue.”
To help investors navigate the current uncertainty, Horneman emphasized the importance of appropriate asset allocation. Her insights come as the S&P 500 index closed at record highs multiple times last week, reflecting a 16% increase over the past three months. The tech-heavy Nasdaq has also performed strongly, rising 21% during the same period.
Another voice on the show, trader Guy Adami, echoed Horneman’s concerns, emphasizing the influence of retail investors on the recent market gains. He remarked, “Just in terms of valuation, things have gotten a tad frothy here,” indicating that the market may be experiencing excessive optimism.
As the deadline for tariff negotiations looms, investors are advised to remain vigilant and consider the potential for volatility in the coming weeks. With the market at record levels, a correction could be on the horizon, necessitating a strategic approach to investment.
