By now, you’ve probably heard the Michael Cembalest of J.P Morgan quote everywhere—especially since Josh Brown dropped it on CNBC barely an hour after I’d read it myself. We all get these reports at the same time—but he’s famous and on TV, and I’m just a schlub. Still, the quote’s too good not to repeat, even if you’ve seen it a dozen times on social media:
“Here’s the interesting thing about the stock market: it cannot be indicted, arrested or deported; it cannot be intimidated, threatened or bullied; it has no gender, ethnicity or religion; it cannot be fired, furloughed or defunded; it cannot be primaried before the next midterm elections; and it cannot be seized, nationalized or invaded. It’s the ultimate voting machine, reflecting prospects for earnings growth, stability, liquidity, inflation, taxation and predictable rule of law.”
Everyone always wants an answer to, “What’s going on in the market?” and the answer usually lies in earnings.
Stock prices are a reflection of the expected future earnings and then a speculation premium, both of which are reflected in a P/E ratio. As a basic orientation, a P/E ratio of 20x means that you are paying $20 for every $1 of earnings a stock generates. When the denominator, the earnings, become suspect, volatile, or in jeopardy, stock prices inevitably follow.
Right now, the market is signaling loud and clear: earnings matter most, and volatility is here.
In his recent note, Cembalest emphasized investor discomfort with the Trump administration’s aggressive tariff policies, which create significant earnings uncertainty.
David Kostin at Goldman Sachs echoes this, noting:
“The S&P 500 entered -10% correction territory this week as investors digested the implications of policy uncertainty on the economic outlook. We trimmed our S&P 500 earnings estimates and reduced our year-end price target to 6200, representing 10% upside from current levels… the recent performance of stocks sensitive to capital markets activity suggests that post-election optimism around a broad-based surge in activity has diminished. The average stock among alternative asset managers, advisors, and investment banks stocks rallied by 13% (vs. +3% for the equal-weight S&P 500) between Election Day and the end of January, but since then has declined by 23% (vs. -7% for the equal-weight S&P 500).”
Josh Brown reinforced these views on his CNBC spot, noting markets are rapidly repricing risk:
“Earnings come first, sentiment second. As long as trade tensions and policy uncertainties persist, expect continued market swings.”
The underlines are mine and I think as long as earnings clarity remains elusive, they’ll continue to be right—and so will we.
How Monument Wealth Management Manages Risk
At Monument, we’ve built a robust, data-driven process specifically to navigate market volatility effectively.
Our investment models are trend-based—we capitalize on what’s working in the markets and avoid what’s not. Instead of making predictions, we follow a “weight-of-the-evidence approach”, integrating relative strength rankings, valuation metrics, and broader market indicators to make objective decisions. This ensures that we stay invested in strong-performing securities and avoid those with weakening momentum.
Disciplined, Data-Driven Decision Making
Here’s a quick breakdown:
- Relative Strength as a Competitive Advantage: Our models continuously evaluate securities based on their performance relative to their peers. This means that even in a rising market, we prioritize investments demonstrating the strongest momentum, ensuring that we systematically cut underperformers and allocate to leaders.
- Sell First, Reallocate Second: Unlike many investment strategies that focus on picking winners, our models identify what to sell first. Only after removing an underperforming security do we look for a replacement, ensuring we maintain a portfolio of high-performing assets rather than simply adding new ones.
- Valuation Discipline: We do not blindly chase high-growth stocks or speculative assets. Instead, our models apply an affordability test to avoid overpaying for overvalued stocks. This ensures that we allocate to securities with strong fundamentals, not just strong momentum.
Tactical Risk Mitigation During Market Downturns
When the market signals sustained declines, our approach adapts to the trend instead of fighting it.
- Holding Cash as a Tactical Shield: Cash is the best hedge and when the data suggests we should be on defense, any proceeds from securities the models sell are temporarily held in a liquid, low-volatility cash-equivalent ETF rather than being immediately reinvested. This prevents reinvesting in declining assets and preserves capital until the market stabilizes.
- Systematic Reinvestment When Trends Improve: Once the data suggests it’s time to move back to offense, we systematically redeploy cash from the cash-equivalent ETF back into the stocks that each the model identifies as trending upward again. It’s not perfect, it will never function at the top or bottom of a market, but it helps investors participate in recoveries without prematurely committing capital during market stress.
- Avoiding Emotional Market Timing: Many investors react emotionally to downturns, either panic-selling or making speculative reentries. Our rules-based approach removes emotion from the equation, ensuring that investment decisions are made based on data, not sentiment.
The Outcome: A Risk-Conscious, Adaptive Investment Process
Our systematic approach to risk management helps ensure that we avoid holding “melting ice cubes”, meaning that stocks with deteriorating momentum are promptly removed.
We don’t fight downtrends—capital is preserved in cash-equivalents during prolonged declines.
We follow the data to reenter markets strategically, ensuring our portfolios align with prevailing market strength.
We prioritize making money over being right—removing human bias from decision-making.
By following this disciplined, rules-based process, Monument Wealth Management aims to protect client capital during downturns while positioning portfolios for what we believe is better, long-term growth.
Let’s keep the conversation going—clarity matters, especially now.
And as always…
Keep looking forward.
Dave
