ETF Edge - Rally versus worry: both at highs 4/27/26

Episode Date: April 27, 2026

Big tech earnings, Fed decisions and successions and a still-fluid situation in Iran… investors should be diversifying. Here’s a list of overlooked areas to extend your hedges.     Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

The ETF Edge podcast is sponsored by InvescoQQQ. Let's rethink possibility. Investco Distributors, Inc. Welcome to ETF Edge, the podcast. If you're looking to learn the latest insights on all things, exchange-traded funds, you're in the right place. Every week we're bringing you compelling interviews, thoughtful market analysis, and breaking down what it all means for investors.

I'm your host, Dominic Chu. Now, earnings, fed, continuing tensions in Iran. could we be nearing an inflection point for the Teflon market rally? Yes or no? Here's my conversation with Paisley Nardini, managing director and portfolio manager over at Simplify and Mike Co, chief strategist over at Yield Max EPS. Paisley, I'm going to start with you,

because as a portfolio manager, as somebody who kind of tracks multi-asset strategy the way that you do, this is a week that has a ton of potential. potential market movers. What exactly would be top of your mind in terms of how investors should be approaching what those headline risks could be? And what exactly makes you think that this time could be something you have to pay a little bit more attention to in terms of Catalyst Weeks? Yeah, well, thanks for having me back, Tom. Good to be here. And you're right. It is a very busy week between earnings with five of the seven Mag 7 reporting on Wednesday and Thursday this week.

we have some inflation data, some growth data, and we have quite a few central banks meeting, including the Fed here. I think all of this, though, is a reminder that markets are quite resilient. And we've seen that over the last month with really the rebound from the market bottom at the end of March. And so I think this is just more information, more insights, more data for the market to really look through, digest, and help position going forward. So oftentimes as investors will look at this as an opportunity.

for markets to go awry for risks to be introduced into asset prices. But I think that we'll just get more information for us to move forward. And so in my portfolio manager seed, I think I'm always leading with that diversification cap is how can we think about protecting ourselves from some of these risks if we have earnings reports that disappoint, obviously with the concentration within the equity market broadly, one or two names disappointing can really pull the broader market down. I don't think there's going to be too much noise from the Fed and the other G7 central banks that are meeting, because I think right now we're really just in this wait and see and on hold. But that inflation print later this week is really going to be telling us to the impact of what we've seen from heightened oil prices from geopolitical risks.

So all of this to say buckle up, diversify, and I think markets will be fairly resilient as we move through this week. So interesting that you bring all of those points up here. You mentioned some of the micro points and some of the bigger points. picture macro points, not the least of which is central bank action or inaction, economic data, and of course, that geopolitical uncertainty. I wonder, though, in this busiest week of S&P 500 earnings season, do you feel as though, from a portfolio manager's standpoint, you have to pay more relative attention to some of those microeconomic points, company-specific points, as opposed to some of the macro ones that we kind of understand more about?

You do. And I think looking at the themes across some of these companies will be quite telling. And I think we've seen roughly about 20 to 30 percent of the S&P companies report thus far. And so this week, I think we're going to see around 40 to 45 percent based on market cap. So it is really important. I do think the bigger story looking for will be the guidance that a lot of these companies provide. I think from both a top line and a bottom line perspective earnings have been quite strong. margins have been a really important part of this narrative as well. As companies have found ways to be more profitable, is this a result of some of the trickle down with an AI?

Is this cost cutting, obviously, which can feed into employment numbers as well? But the themes across these companies, I think, will be quite telling to my earlier point. And like I said, I think the guidance is what investors should really be focused on. Because even if we're printing a strong quarter, rounding out the first quarter of 2026, there's a lot of exuberance that's priced into the markets. And we've seen that even with valuations kind of adjust and rebound with the rise

and asset prices over the last couple weeks. So as an investor, as a portfolio manager, is really thinking about what's next, right? Because markets are forward-looking in nature. All right. So, Mike, Paisley brings up both the concept of kind of this exuberance, right, that the markets are having in certain parts of the market, specifically in places in technology. Also this idea of resilience in these markets, right,

in the face of many of these uncertainties that are out there, not the least of which is a continued war in the Middle East. Has it been surprising to you just how resilient the market has been and just how exuberant it has been in certain parts of that tech trade? Well, I mean, the exuberance is a little bit easy to understand when you take a look at the operating performance of a lot of the companies that have been doing as well as, they have recently. So, you know, it's not surprising when you see names like Nvidia do well.

Maybe it's a little bit more surprising to some, and they were kind of catching up with this when you start seeing the operating performance of companies like micron technologies. So, you know, the memory portion of the business has historically been more of a commodity pricing story, much less so now because they have tremendous pricing power. I mean, take a look at their operating performance, probably 61 percent, adjusted net income margins, that's net of tax. These are the kinds of numbers that a few years ago you would have thought were almost impossible to fathom. I think also the disruption that you talk about, which is what's going on in the Middle East, I think that left a few investors on the

sidelines for a bit. And when you think about it, capital generally flows into the markets progressively through time. So what ends up happening when you have that is you have a bit of accumulating and pent up demand. And when people start to think that they're getting maybe not the all clear, but clearer picture, then you start to see that. Plus, we're going to have tax refunds coming in. That also could contribute potentially to some inflows. So you put all of those things together.

And I think that's one of the reasons why we're seeing a little bit of a bid. You know, the way I think about it on the economic front also with respect to the feds, you know, and other central banks meeting, inflation data is going to be tough. I think for monetary policy to follow sort of the idiosyncratic issues that are related to inflation as a function of higher oil prices, because it's not like increasing short-term rates is necessarily going to fix that problem straight away. And it also, you know, the end of that isn't exactly clear either. We are seeing, you know, full-year targets on crude going a little bit higher. But, you know, I think that actually could mitigate the concern about increases in rates because I don't think central banks are going to to respond to that until they have greater visibility. Let's tackle the kind of news at hand, I guess, a little bit more head on here right now. We know that those five big, magnificent seven stocks are going to be reporting earnings over the course of Wednesday and Thursday. We know what those names mean to the market from a straight-up market capitalization and market-waiting

standpoint. So, Mike, I guess maybe I'll start with you here first to kind of lay out the state of play before we delve a little bit more to this conversation. From an options market perspective, these things are always, and have been for years now, big stock-moving catalysts at time. What exactly do you see between Amazon, Alphabet, Meta, Microsoft, and Apple, between Wednesday through Thursday, as being the potentially biggest market-moving event,

not just for the individual shares, that's option one, but then also its impact on the rest of the market, option two. Yeah, so for the market overall, I'm going to have to go with Amazon, Alphabet, and Microsoft, and for the biggest individual mover on its own this week as they report, that's going to be meta. So of the Mag 7, you know, of the Mag 7, 5 of which are reporting earnings this week, meta, which it almost seems impossible to say such a thing. It's the smallest of these at a measly $1.7 trillion or so. So that's the one that's actually implying a move of about 7.5% through the end of the year.

And that makes a little bit of sense because if you take a look at their balance sheet, one of the things that has happened is that they have added a little bit more leverage to it. It's kind of off balance sheet debt. But when you look at these other companies, they're still operating with significant positive free cash flow, even though their cap-x numbers are as enormous as they are. So the more leverage effectively you add than one of the things you're going to see is a little bit more volatility in the equity. Meta is the only one of these names that we don't actually own in our discretionary Altifund. And that is the one that's actually anticipating the biggest move.

From an options perspective, the reason for this is that we typically like to sell premium to sort of generate a tailwind, if you will, get a little bit of positive carry. But I will tell you that in Meta's case, this is one of the ones where we've seen above average activities, calls outpacing puts. but I think that maybe this is the one that people might rather be long options premium going into the print. All right. Interesting there. Paisley, from your standpoint, as you take a look at the way that these companies are set up going into this earning season right now, what exactly, you mentioned before that you're going to look for the outlooks here more closely than perhaps some of the other metrics out there. But from a setup standpoint, do you feel as though for many of these names who've seen quite a bid since some of the lows that we saw during the Iran war, they've run up a lot. It seems like muscle memory is kicked in. Everyone's gone right back to that kind of mag-7 mega-cap tech trade. What exactly do these setups look like to you in terms of risk-reward?

And does that kind of either worry you or give you some encouragement for positioning in the coming weeks? I always like to zoom out a little bit. I think if we look at that trailing one-month performance, which you highlight, the mag-7 in particular have led the pack higher. And so if we were to react to that information today, we might say that some of these stocks are overvalued. If we zoom out and we look at more of the year-to-date performance period, even though some of these stocks might be slightly higher, their valuations are actually lower, which is really an impact of the earnings growth. And as we look at the broader market and where most of the earnings growth is coming from, most of the revisions higher, most of the improvement to profit margins, a lot of this is centered

within technology discretionary sectors. And in particular, the MAG-7, that we're highlighting here. So I think over the last couple years, as these companies within the tech sector continue to outperform, the market wants to discount them going forward, and yet they continue to show the resiliency and their ability to deliver,

excuse me, on both the top and the bottom line. So as I look out over the next month, with some of the impact that some of these stocks might see from earnings releases, I think there's still more room to run. I think that term, which is probably overutilized at this point, which is cautiously optimistic,

I don't foresee any reason as to why there might be a broad blow up within these companies in particular, and the earnings and the fundamentals underpinning them continue to show why they can deliver to stockholders. So I do think that there is more upside ahead, but I think taking a more cautious view through the lens of being diversified within your broader portfolio is always the most prudent path to choose as an allocator. Paisley, where are you looking for that diversification? What parts are exactly, in your mind, which parts fit the bill in terms of the places that you would look to find some of that relative value or anticipated momentum that are not part of that kind of consensus trade that's building right now? How is diversification being executed from your standpoint for your portfolios? I personally am taking a little bit of a page out of the playbook from 2025.

It wasn't that long ago when the theme of diversifying abroad outside of the U.S. was front and center. And I think as we see a resolution, whether that be in the next week or the next four weeks or the next eight weeks, on some of these Middle East geopolitical risks, the impact of that to the dollar is that the dollar likely will go lower. The dollar tends to be the safe haven asset. We saw a strong bid to the dollar over the last month. Some of that has started to unwind. And so if we continue to see further resolution in some of this war in Iran, the ability then of international assets and assets outside the U.S. to perform well on a week and dollars, a trade that we're definitely looking at. And then I would say more broadly speaking, and not just within oil and gas, but commodities broadly and hard assets and their ability to better weather some of the higher inflation that we're continuing to see this sticky inflation. Commodities, hard assets broadly is something that I think is underrepresented within broader portfolio. So international assets on the back of a weakening dollar. And then the ability

to introduce hard assets is another way to diversify and kind of lean into some of the this higher for longer and the inflation concerns. Interesting, Mike, because those parts have been kind of the plays that we have seen, to Paisley's point, play out over the course of the past year, as opposed to what we saw in the years prior to that, which has been all about mega-cap tech media and telecom. Let's talk about what happens beyond this Mag 7 trade. You had mentioned a couple stocks before earlier in the show, but if we look beyond Mag 7, What exactly would you be looking for in terms of the opportunities that are presenting themselves around some of the non-Mag 7 names that are reporting earnings this particular week?

Yeah, I mean, just speaking to Paisley's diversification thoughts, I think I would just talk about some of the things we actually own to see that play out in our own portfolios. So, first of all, with respect to the hard asset side, we own Southern Copper, we own the silver miners, we own some gold. So I think that's kind of a nice sort of non-correlated sleeve to have in one's portfolio. And then you can also look to companies that are very far afield of, you know, the kind of things that we're talking about here in, you know, the AI trade and all of that. So one, a name that we actually have in the portfolio that I think kind of fits the bill on this, it has comparable levels, believe it or not, of top line growth. And if you're wondering what it is it's comfort systems ticker f i x this is a a texxx based hback um you know company so completely

outside of the things that we're talking about but this thing has has just been doing tremendously from an operating perspective so there are places believe it or not inside the economy that have tech like growth but aren't you know old industries uh essentially and totally uncorrelated Now, there is some benefits, of course, too, because, you know, data centers also do need some HVAC in them, too. So you could potentially see some play in that area. But there are, I think, important areas that people should make sure that they are invested in outside of it. Look, we have thematic funds that are invested all in semis and chips.

And they've crushed it this year, of course. But is that the way you really want to sort of press your bets going into the new year when there are, in fact, other other companies that I think are seeing comparable levels of growth and don't have basically, you know, the same exposure. Paisley, it's an interesting point here because I know that your firm also runs a suite of different types of ETFs. I wonder if you might be able to give us some insight thematically into where you are seeing some of the most activity among people who are kind of trafficking in the funds that you manage. What types of asset classes, what types of risk tolerances and levels, are you seeing a little bit more of that pick up and interest from your

suite of products? Yeah, I might just reiterate that hard asset play, both in our commodity and our managed future strategies, which are a little bit more dynamic than some of the static commodity solutions out there in the market. We have the ability to go long short. And so whether we're looking at the energy sector, there's opportunities as well with an agricultural, soft commodities, and even in interest rates. And I think that then dovetails into the other part of the market.

that we are seeing interest is kind of reintroducing some of the duration risk that I think has been on the sidelines for much of the last, you know, 12 to 24 months. We have started to see investors thinking about the level of, say, the tenure, which is kind of started to increase back up to, you know, closer to 4.3, 4.4, 4.5 percent. And that's really seen as a technical level for some of our portfolio managers to think about adding duration as another risk or a way to hedge against risks of falling rates. And I think that is a risk that many investors are underpricing the market right now with kind of the removal of Fed cuts through the remainder of this year,

whether it's, you know, weakening or softening employment data or whether inflation does start to come back down, especially as we get through some of this impact to oil and gas in particular, markets are not pricing that in currently. And so the ability to add duration or interest rate risk right now when it is much cheaper as another area of the market, we're starting to see flows, whether that be in core bonds or some of our unique duration tools that we have in our various ETFs that allow investors to get capital efficient duration in various parts of the curve. So yeah, I would say on two ends

of the spectrum, you have interest rate risk, which is kind of at odds then of what I'm saying on the other side of this hard asset play, which tends to do better in the higher for longer inflation type environment. So kind of two ends of a seesaw that we're seeing as ways. that investors are really starting to navigate some of the risks ahead of them. All right. And then to kind of cap things off here, Mike, I'll ask you this question. It's not all about these Mag 7 names. There is a lot of interest out there in terms of where people are placing bets.

You had mentioned earlier during our on-air show for the halftime report today, that you saw some kind of unusually high call option activity for certain types of stocks in the market. where else are you seeing a little bit more of that kind of trafficking more so on the bullish side of things with call option activity versus some of the more hedging activity that we're seeing on the put option side? Yeah, I mean, it's interesting because I think when we've been sort of confronting the headwinds that we have had since basically this whole thing broke out in the Middle East, one of the things that people are worried about, of course, is consumers. right so when you start seeing the biggest impact to consumer checkbook is going to be felt at the pump so when gas prices go up pasey and i both know this probably better than most because we're in the state with the highest gas prices that can affect consumer spending so one of the things that i've been keeping a close eye on is actually the kinds of results that we've been seeing coming out of consumer names not just consumer staples

because you would expect that diapers and toilet paper are still going to continue to sell no matter how bad things get from a geopolitical standpoint, but the discretionary side. And this is the area where actually, I think some of the numbers have held up speaking, perhaps to the resilience of the American consumer, or maybe specifically to the upper end of the American consumer,

that is one of the areas where we continue to see, better results actually coming out of some of the earnings that we've seen, and some of the bullish blows. I think people are sort of looking into that area, thinking maybe some of those things got a little bit of punishment, and that maybe there is going to be light at the end of the tunnel. All right.

And then Paisley, similar question to you. What exactly you think is going to be that part of the market that you're going to be paying the closest attention to after this week to see if there is any more upside activity in store for the markets? Yeah, at Simplify in particular, we're really looking at oil and gas prices, as mentioned. We have some of our flagship solutions that are going long and short in these energy, oil and broader commodities.

markets. And so this becomes a big headwind or tailwind, as we'd like to say, for many of our strategies that are playing in more of the commodity markets. So that will definitely be an area that we're looking for. And then more broadly speaking as well, just the overall kind of level of volatility in the marketplace. We have a lot of strategies that are going short ball, the ability to harvest some of that for yield potential for our client's portfolios as another measure of kind of economic and market activity that we're paying close attention to. And then just to reiterate, The level of rates, like I said, higher for longer has been the narrative. Do we see forces or kind of tailwinds that might start to push rates back down to closer to, say, 4% on the 10-year?

And if so, does that become an interesting inflection point for markets broadly? Now it's time to round out the conversation with some thoughtful analysis and perspective to help you better understand ETFs with our Markets 102 portion of the podcast. Paisley Nardini, managing director and portfolio manager at Simplify continues with us now. Hazley, thanks for being here with us. I want to kind of pick up the conversation at one of the points where we left it off during the ETF Ed show this week. And that's a little bit about just what you're seeing play out outside of the equity markets in a very equity markets catalyst heavy type week. It is the most busy week, the busiest week for earnings in the S&P 500, and there's a lot of mag seven names reporting. But it's some of the other action in the market right now that's peaked

your interest. Can you take us through what exactly you think is going to be something we have to watch out for outside of those Mag 7 earnings reports? Yeah, I'm really happy that we're talking about the topic of what's beyond equities, because in a portfolio, oftentimes we forget about bonds until it's front and center, and then it's too late to react or adjust the portfolio accordingly. And so what's really important over the next several weeks is this changing of the guards at the Fed Chair level. So we got information in the last couple days that Kevin Warsh will move forward with his nomination to become the next Fed chair that is likely to pass with flying colors. And so we now have a new individual at the helm

that can really help drive policy decision making. He's obviously only one person of many. And so his individual beliefs and whether he wants to hike rates or more likely cut rates, there's other people at play there. But I think the market, are really going to be cautious as to what this might mean. Anytime there's a changing of the guards, markets are going to experience in volatility because they're going to have to start to price in what that might mean. And so over the next couple weeks, we now, I mean, even this week, we have Chair Powell's likely final meeting as Fed Chair.

No policy decisions are expected to be made this week. I think the markets for the most part are also saying there's probably no policy decisions being made over the next couple meetings. But again, if we were rematch, remember the role of the Fed, they have a dual mandate, and that's data-driven. And so we have employment on one side of the spectrum. We have inflation on the other side of the spectrum. And what we've seen over the last couple quarters is the Fed's kind of between a rock and a hard place. And this ultimately has resulted in the market pricing out any Fed rate cuts over the next 12 months for the

most part. And so that leaves a lot of complacency in the market. Anytime markets get complacent, whether it's inequities or within bonds, that's usually when volatility strike. And so as an investor and as a portfolio manager, you start to think forward as what are the risks of being complacent? What might we see happen? And of course, there could be a flight to safety trade, which might result in interest rate declines. And so do investors have enough interest rate or duration risk in their portfolio? Over the last 18 months, most advisors that I meet with have been anti-duration. So I think that's a key risk right there.

The second risk, of course, is credit risk. And that, of course, has implications with spill over from equities. We tend to see at the late end of a cycle, and I'm not necessarily saying that we're there yet. But we typically see credit spreads start to widen before the drawdown in equity prices. And so if we're paying very close attention, I would say, two credit spreads. They are at historical tight still. But it's interesting. As an investor, you're getting compensated pretty attractive levels for taking on credit risk,

just given the overall level of interest rates broadly. And so you really have to kind of dissect how much of a yield within credit is coming from treasuries versus coming from that spread component. And so I think those two risks within bonds in particular is something that we're paying close attention to. I'd love to kind of go into that further, Paisley, because I kind of understand what you're saying, but I want to see the work, so to speak, right? As you kind of go through this thought process, you mentioned the tightness of spreads right now.

At the same time, we talk about the compensation for taking on credit risk. Those tighter spreads, right, the amount that companies, whether their investment grade or their junk slash high yield, that they have to pay an interest above and beyond similar maturity treasury instruments is at this kind of very narrow level, right? So you're not getting compensated as much for that credit risk, because you have been in parts. and years past. So with all of that in play right now, I wonder where you then find that kind of relative value. You had mentioned that people are not exposed to duration as much, so that might be one of those kind of catch-up trades that you might have to get more exposure into. What other parts of the market within fixed income do you think are presenting at the early stages of being opportunities

for people to kind of leg into as we start to see these things potentially go into a transition phase like certain parts of the equity market are right now. Yeah, and I think diversification within any class is very, any asset class is very important. So within fixed income particular, if you aren't willing or able to take on credit risk and you don't want to just given how tight those spreads are, you can start to look at other areas or sectors like mortgages, like securitized. I would say over the last, you know, roughly two years, there's been a big trade for many allocators away from corporate credit and into mortgages because mortgages have been compensating

investors because of prepayment risk. If we think about what happened in 2022, interest rates obviously went much higher. That obviously led to mortgage rates being much higher. And so now, if you're buying mortgages, you're not as much as you were, say, you know, one or two years ago, but you're still getting some level of compensation for taking on what becomes than that prepayment risk if we do see rates fall and mortgage holders start to kind of pay down some of their outstanding principal balance. So ultimately what this means as an allocator is you can find more diversified ways to pick up additional yield or return by going into the mortgage arena versus say investment grade credit. And that's been a pretty popular trade as of late. And I would say

just broadly speaking as well, and we've talked about how credit spreads are quite compressed. I would also say that the underlying issuers, and of course, investment grade, but also high yield, the credit quality of many of these issuers has actually improved over the last several years, as many of these kind of middle market companies have reverted to private credit and some of the kind of more direct lending areas to get their financing needs. So I think it's also probably prudent as investors in our profession to kind of look at the composition of some of the credit risk and say maybe these spreads are tight. because you're just not taking on the same level of credit sensitivity or credit risk that you were, say, 10 years ago.

All right. And then really quickly, because you did open up the door slightly on that, on the private credit side of things, from a portfolio manager standpoint, are you now turning to be more opportunistic with regard to some of the sell-off that we have seen in certain parts of that private credit market? Yeah, we did see definitely a buying opportunity, especially in the publicly listed BDC market, which is what many people will follow, especially within the ETF space. Simplify does have a private credit ETF. The uniqueness of this is we do have a proprietary hedge with on top of the exposure to help cushion in some of those drawdowns. But we did see a buying opportunity broadly. Some of that has been captured in the last couple weeks here. I do think that it's really important as an investor to really understand what you own. And then also to just kind of look at the data and get the facts straight. I think

if we talk a lot about how BDCs tend to trade at a discount to their nav, that's pretty common. That's been the case for really the last 10, 15 years. And so I think headlines sometimes like to pick up that we're treating in these really unique times. The discounts have been greater than normal. And a lot of this, we believe, is headline driven, just the narrative that's being pushed out on some of the redemptions and such. The underlying quality covenants and really the loan losses underneath them are not at levels that we think are alarming at this point. All right. Interesting thoughts there for sure. Paisley Nardini, it's Simplified. Thank you so much for being with us right now. We appreciate the conversation. Thank you. All right, well, that does it for the

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