Enterprising Investor Podcast Summary
Episode: Christopher Shipley: Navigating US Equities, Tariffs, and Global Markets in 2025
Release Date: July 15, 2025
Introduction
In this insightful episode of Enterprising Investor, host Mike Wahlberg engages in a comprehensive discussion with Christopher Shipley, Senior Vice President and Co-Chief Investment Officer at Fort Washington Investment Advisors. With an impressive tenure overseeing approximately $90 billion in client assets, Chris brings a wealth of experience from his previous 23 years at Northern Trust Asset Management. The conversation delves into the current state and future outlook of US equities, the impact of geopolitical tensions, particularly in the Middle East, and broader global market dynamics.
US Equities and Middle East Tensions
The episode opens with a discussion on the seemingly muted response of US equities to the ongoing Middle East tensions. Mike notes the bumpy ride for US stocks this year, prompting Chris to explain that the US market has become more resilient to such geopolitical events due to several factors:
Chris Shipley [01:01]: “The US Market has responded rationally in recognizing that the economic implications... are going to be relatively modest from what's been transpiring so long as it remains confined to the region.”
Chris highlights the US's increased energy independence, reducing its vulnerability to oil price fluctuations stemming from Middle Eastern instability. Additionally, he points out that Iran’s limited options make significant disruptions like blocking the Straits of Hormuz unlikely, further easing market concerns.
Tariffs and Trade Dynamics
The conversation transitions to the impact of tariffs, a topic of considerable volatility in both markets and economic models. Chris elaborates on the tariff landscape, emphasizing the manageable nature of current tariff rates and their limited impact on US GDP:
Chris Shipley [08:59]: “If you have a 10% tariff, that does seem pretty manageable and from the US perspective could actually be the sweet spot of generating substantial revenue with minimal economic consequences.”
He explains that the market has largely priced in the likelihood of tariff reductions and delays, which has bolstered investor confidence. However, Chris expresses concern over potential prolonged legal battles that could weaken the US’s bargaining position, potentially leading to higher tariffs and market instability.
Growth vs. Value: US vs. Europe
A significant portion of the discussion focuses on the underperformance of US equities relative to global markets, particularly Europe. Chris attributes this to the rotation from growth to value stocks within the US:
Chris Shipley [04:25]: “When you compare the S&P 500 to Europe, you're really comparing growth to value.”
He contrasts the heavy weighting of tech and growth-oriented sectors in the US market against Europe’s more value-centric composition. The disparity in sector exposure, especially with the US’s dominance in technology, has led to differing performance trajectories, especially as higher yields have favored value stocks over growth stocks.
Inflation, Yield Curve, and Interest Rates
Mike and Chris delve into the implications of rising yields and the yield curve’s role as a market predictor. Chris highlights the recent volatility in Treasury yields and its broader economic implications, particularly on housing affordability:
Chris Shipley [16:40]: “At today's prices... buyers need to have $127,000 in income in order to be able to afford the median priced home in this country... It’s an affordability issue that has really blocked out first-time homebuyers.”
He underscores the critical balance between short-term and long-term interest rates and their impact on economic sectors such as housing. The discussion underscores the potential risks of a tightening yield curve, which could dampen consumer spending and corporate margins.
Market Risks and Consumer Psychology
Chris warns of the low margin of safety in the current market, given the high valuations:
Chris Shipley [19:06]: “When we're sitting at comfortably above 22 times forward earnings on the S&P 500, there's a low margin of safety. The market is susceptible to bad news.”
He points to potential threats from both internal factors, like consumer and business confidence, and external shocks, such as geopolitical events. The fragility of consumer spending, especially among lower-income segments, poses a risk to sustained economic growth and market stability.
Opportunities: AI and Small Caps
Despite the risks, Chris identifies promising areas for growth, particularly in artificial intelligence (AI) and small-cap stocks. He outlines a multi-tiered beneficiary model for AI, predicting significant long-term growth:
Chris Shipley [20:25]: “When we look at AI and the implications that it has... the application layer where you have software that's being written and then sold to exploit the benefits of AI... could be the next leg of growth for the market and the economy more broadly.”
Additionally, Chris highlights the undervaluation and potential of small-cap stocks, noting their historically low representation in the US equity market:
Chris Shipley [22:54]: “Small caps as a percentage of the total US equity market... there's an opportunity there where... there's some opportunities brewing.”
He emphasizes that even modest capital shifts into small caps could significantly impact their performance due to their current low weighting.
Conclusion and Closing Remarks
As the conversation winds down, Mike poses reflective questions to Chris about his career beginnings and advice for his younger self. Chris shares his first job experience, where he innovated by automating back-office processes through programming, underscoring the importance of networking and challenging the status quo. This segment provides a personal touch, highlighting the value of adaptability and forward-thinking in the investment management industry.
Chris Shipley [23:15]: “The one thing I did then... I really forced myself to really think outside the box... and really made a name for myself early on.”
Mike wraps up the episode by thanking Chris for his valuable insights, offering listeners a comprehensive view of the current investment landscape and future possibilities.
Key Takeaways
- Resilience of US Equities: US stocks remain relatively insulated from Middle Eastern tensions due to energy independence and limited economic implications.
- Tariff Dynamics: Current tariff levels are manageable, but prolonged legal disputes could pose risks to market stability.
- Growth vs. Value Rotation: The US market’s heavy tilt towards growth stocks contrasts with Europe’s value orientation, influencing relative performance.
- Interest Rates and Affordability: Rising yields impact sectors like housing, with significant implications for affordability and consumer behavior.
- Market Risks: High valuations present a low margin of safety, making the market vulnerable to various economic and geopolitical shocks.
- Growth Opportunities: AI and small-cap stocks represent significant growth potential, offering pathways for diversification and investment.
This episode of Enterprising Investor offers a thorough analysis of the intricate factors shaping US and global equities, providing listeners with actionable insights and a nuanced understanding of the current investment climate.