By John Kimelman

In mid-February, John Davi, the founder of Astoria Portfolio Advisors, a New York City-based asset manager that serves small financial advisory firms, told Barron's Advisor that large-cap U.S. stocks were overvalued and due for "a big fat correction." Little did Davi, who builds ETF portfolios, know at the time that a major culprit of that swoon would be unexpectedly severe tariffs imposed by the Trump administration.

Since we talked to Davi, the S&P 500 index has fallen by about 11%, with technology leaders such as Apple, Alphabet, and Nvidia -- members of the so-called Magnificent Seven" -- off by even greater percentages. Given the changing market landscape, we thought it was worth hearing how Davi is repositioning his portfolios to deal with the market uncertainty and depressed stock values.

When we last talked, you were adamant that the large-cap U.S. stock market was due for a correction, but you didn't mention that tariffs would be the cause. When the market is looking for an excuse to sell off, it will take whatever presents itself. These tariffs were a shock to the system, but stocks were overvalued.

You were quite bearish on large-cap growth stocks when we last talked, particularly the Magnificent Seven. How do you feel now about the stock market with the indexes down so sharply? I'm not as bearish as I was when we did the interview two months ago because stocks have corrected, but we're certainly not positioned for upside either. We are currently underweighted equities. I think there is going to be a long bottoming process for stocks.

We don't expect a good earnings season because margins will be under pressure as the cost of goods and services are going to go up. To be bullish on stocks, you need a catalyst, and I don't think earnings are going to grow.

So what sectors are you overweight? We're overweight bonds. We like high-quality bonds such as Treasuries and corporates .

You were bearish on bonds the last time we talked. What's changed in your thinking? So usually inflation [or the threat of coming inflation] is like kryptonite to bond markets. But you know, there has been a flight to quality, so people will plow out of equities into bonds.

What's a good ETF or two that embraces your bond thesis? One is the SPDR Portfolio Intermediate Term Corporate Bond ETF. And another is the SPDR Portfolio Intermediate Term Treasury ETF. We also have a recession hedge, which is the SPDR Portfolio Long Term Treasury ETF, in case a recession happens and bond yields go lower.

Does it give you pause that Treasuries have been under pressure lately? Are you concerned that a selloff could continue as foreigners sell our bonds? It's a concern. I realize that yields have been going up in recent days [and bond values have fallen] because foreigners are dumping their Treasuries, but I expect that to slow. Longer term, if we go into a recession, yields will come down and bonds will rise in value. That's our call, and this is classically what happens in a recession. In addition, we own gold through ETFs and the AGF U.S. Market Neutral Anti-Beta Fund so we can hedge portfolio risk.

When we last talked, you felt that there were many opportunities among U.S. mid-cap and small-cap stocks. Still feel that way? No. Unfortunately, right now I think it's more time to play defense, and this is not going to be a good year for small-caps. This is a time for owning dividend-paying stocks and low-volatility stocks.

Since stocks started falling hard, have you been hearing from your RIA clients about how they are handling this? Are they all acting in ways that are disciplined? I've been encouraged because many have been through the Covid-19 pandemic in 2020 and the financial crisis of 2008. There is the concept of the "Vanguard Put," where advisors continue to dollar-cost-average into various Vanguard funds such as its S&P 500 ETF even during downturns. Imagine where the S&P 500 would be if Vanguard didn't take in the billions of dollars that they took in during these times.

So just like the famous Fed put, these regular inflows into Vanguard provide a backstop to the stock market? I think it's more powerful than the Fed put, to be honest.

What advice would you like to give to financial advisors confronting the market's latest downturn? I would tell them to stay liquid and be very diversified with international stocks and alternatives. This is the year to play defense with dividend-paying stocks and not go on the offense. What's going to work in the years to come is going to be different from what has worked the last two to three years.

Thanks for your time, John.

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April 14, 2025 15:19 ET (19:19 GMT)

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