With market volatility turning up several notches after last week’s post-Liberation Day scare, it’s been tough to avoid pain, even if you’re heavy in the lower-beta defensive names that should hold up when all else flies south. With many market timers attempting to predict a bottom, the best move would be to take such calls with a grain of salt. Perhaps Steve Eisman, the man made famous by shorting the housing market prior to the 2008 financial disaster, put it best when he discouraged investors from trying to be a hero and punching a ticket to the high-risk stocks that have lost more ground than the market.
Indeed, it’s hard to gauge just how much tariff risk is baked in right now. Some pundits are looking for stocks to fall to 4,100 while others think 4,500 could mark the trough. Others, like Fundstrat’s Tom Lee, think the “right pieces” for a bottom are already in place. While such bottom calls get attention, investors should focus more on riding out the rough waves, rather than seeking to sell with the intention of getting back in at the bottom.
Don’t be a hero as rising tariff risks drag down stocks
With stocks settling in the latter part of Monday’s session of trade, perhaps balancing one’s risk/reward with defensives could prove wise. Indeed, some stocks are just better equipped than others to ride out what remains of the pain. Of course, these more defensive names may not be in for an explosive relief rally when stocks finally do ricochet off the bottom of the first slump of Trump 2.0. But at the very least, they won’t require one to run the risk of getting cut as they aim to catch a falling knife.
Berkshire Hathaway (NYSE:BRK-B | BRK-B Price Prediction), McDonald’s (NYSE:MCD) have been a pair of relatively defensive names that have outperformed (they’re still in the green for 2025) the market on the way down and could continue to do so as markets price in the full extent of potential tariff risks. Despite the fear of the unknown and the anxiety-inducing Trump recession headlines, capital preservation with such high-quality defensives could continue to be the way to go if a Trump recession (50/50 chance it’ll happen, in my opinion) is in the cards.
Berkshire Hathaway
Berkshire Hathaway stock bucked the trend by rising in the face of the worst stock correction in years, at least until Friday’s session, which saw even the great Berkshire slip by around 8%. Despite last week’s weak finish, Berkshire remains a great way to ride out a storm, given its cash hoard that’s been on standby for a few quarters now. Of course, the big question on the minds of Buffett fans is whether the correction has made stocks on Berkshire’s radar cheap enough to start doing some buying. Time will tell.
In any case, it’s tempting just to buy Berkshire on the latest dip, even if they’re trading at historically elevated valuations. While Berkshire’s relative outperformance is remarkable, I’m not so sure the relative gains will continue, especially since a lot of tariff risk has already made its way into the S&P. Unless we’re given evidence of substantial buying activity in the coming months, I’d be inclined to think a bit of reversion to the mean could be in the cards.
McDonald’s
As you’d expect, shares of the fast-food icon have held up rather well, now down just over 6% while the S&P 500 is off close to 18% from its peak. At 26.31 times trailing price-to-earnings (P/E), shares of the Golden Arches certainly don’t come cheap. But with a 0.62 beta and a stable, growing 2.4% dividend yield, it’s hard to find firms that are more predictable (and resilient to tariffs) than McDonald’s.
Furthermore, dimmer economic prospects and thinner wallets could mean more Americans heading over to the local McDonald’s to take advantage of the promos and the revamped value menu. In a Q4 conference call, McDonald’s CFO Ian Borden recently remarked on the company’s plans to adjust “value and affordability” to win more business. As a leader in the value wars, I’d not sleep on the name ahead of a potential Trump recession. For such recession resilience, a respectable premium should be expected to be paid.
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