Equity risks and alts opportunities

Episode Summary

Executive Summary: Markets have rebounded to pre-Liberation Day levels as investors assume tariff pain will be softened or delayed, but Goldman’s David Koston says stocks are pricing an optimistic no-recession outcome despite elevated policy risk and rich valuations. Patty Raphael says RIAs remain engaged, are expanding use of volatility-sensitive and dislocation strategies, and continue to see rising interest in private markets and diversification.

Main Topics: Equity market rebound and tariff relief expectations (Priority: 5/5): The panel explains that stocks recovered sharply after the April 9 tariff delay, as investors concluded there is likely an off-ramp from the most severe proposed trade measures. Valuation versus recession risk (Priority: 5/5): Koston argues U.S. equities are trading at a historically high multiple even though recession odds remain meaningfully elevated, implying the market is leaning too optimistic. Second-quarter earnings and tariff pass-through (Priority: 5/5): The discussion focuses on how companies may absorb, pass through, or negotiate tariff costs, with greater risk expected to show up in Q2 revenue and margins. RIA client sentiment and portfolio responses (Priority: 4/5): Raphael says advisors are highly engaged but not panicked, and are increasingly using products that can benefit from volatility and short-term market dislocations. U.S. versus international market positioning (Priority: 4/5): Both speakers note rising interest in non-U.S. exposures, especially Europe, as a weaker dollar and relatively cheaper valuations abroad improve the global opportunity set. Private markets and concentrated stock risk (Priority: 4/5): Raphael highlights growing interest in private equity and private credit, while also warning that concentrated single-stock positions remain a major risk for retail investors.

Key Arguments: The market rally reflects a belief that the worst tariff scenarios will not be implemented in full, especially after the 90-day delay announced on April 9. U.S. stocks at about 21x forward earnings look expensive relative to recession risk, suggesting the market is pricing a no-recession scenario. First-quarter earnings were strong, but they are backward-looking and do not yet reflect the tariff shock announced in April. The main corporate debate is whether higher tariffs will be absorbed by companies, pushed to customers, or negotiated into lower supplier margins. Q2 results are likely to reveal more about demand weakness and margin pressure from tariffs, with full clarity arriving around the time the tariff pause expires. RIAs are not fleeing uncertainty; they are actively seeking solutions that can profit from higher volatility and market dislocations. Interest in international markets has increased among U.S. investors, while European investors show a tendency to repatriate capital to home markets. Private markets are increasingly viewed as a way to give individual investors access to institutional-grade opportunities. Diversification matters because many single stocks suffer severe drawdowns and never recover, while broad index exposure has historically delivered better long-term outcomes. In a downside/recession scenario, earnings could fall about 10% and the S&P 500 could trade around 4,600; in the baseline, the market should move higher as earnings grow.

Data Points: U.S. stock valuation: 21x forward earnings - Koston says the U.S. market is trading at a historically high multiple despite recession concerns. Alternative global valuation: ~14x earnings - He compares non-U.S. markets as materially cheaper than the U.S. Earnings growth expectation (Q1): +6% expected vs. ~+12% actual - First-quarter earnings came in well above expectations, providing some support for equities. Q1 earnings surprise: ~6 percentage points positive surprise - He notes this is larger than the typical beat over the last 12 quarters. Typical quarterly earnings surprise: ~4 percentage points - Historical reference for how much earnings usually beat expectations. Recession probability: close to 50-50 - Koston describes recession odds as still materially elevated. U.S. market share of global benchmark: 65%-70% - He explains why investors are unlikely to abandon U.S. equities entirely. Potential downside earnings decline: ~10% - Koston’s recession scenario assumes earnings could fall roughly this amount. Potential S&P 500 downside level: around 4,600 - Estimated market level in a recessionary downside scenario. Conference attendance: about 100 leaders - Raphael describes the RIA Professional Investor Forum audience. Assets represented by attending firms: $1.3 trillion - Aggregate client capital managed by the RIAs at the conference. Concentrated stock definition: more than 25% of an account in a single position - Raphael uses this threshold to describe concentration risk. Russell 3000 historical stock count: 9,227 stocks - Used to illustrate how many companies have passed through the index since 1992. Stocks removed from Russell 3000 over time: about 6,000 - Shows the turnover and attrition among listed companies. Median performance of all Russell 3000 constituents since 1992: 2% - Evidence supporting the case for diversification. Share of those stocks with positive performance: about 50% - Half of the stocks had positive returns, half negative. Share of those stocks with 75% drawdowns: 46% - Nearly half experienced severe drawdowns during their life. Share of deep-drawdown stocks that never recovered: 8 out of 10 - Illustrates the danger of single-stock concentration. Broad index return since inception: about 10% - Comparison showing how an ETF or mutual fund tracking the Russell 3000 would have performed.

Pivotal Quotes: "the market reflects that. This optimistic view that there will be an off-ramp from a lot of the debate in proposed high tariffs" — David Koston: Explaining why equities have rallied despite tariff uncertainty. "U.S. stocks trade at 21 times forward earnings... and so you would generally not expect the stock market to trade at such an elevated valuation given those historically high problems of recession." — David Koston: His core valuation warning about the disconnect between price and recession risk. "clients aren't shying away from the uncertainty. They're not paralyzed by fear. They're highly engaged" — Patti Raphael: Describing RIA client behavior amid market volatility and policy uncertainty.

Implications: Investors are assuming a soft landing and tariff de-escalation, but the next 60 days—especially Q2 earnings and tariff deadlines—could force a reset. Diversification, international exposure, and volatility-sensitive strategies may be increasingly important.