DANIEL: Hi there! I’m Daniel Jew, Edward Jones Northwest division leader and I also served as a financial advisor for 14 years right here in Northern California. I am so excited to kick off this special edition of Market Compass exclusively for our clients in Northern California and Hawaii. We have two fantastic guests today who will provide some valuable insights to help clients like you navigate the unique challenges and opportunities investors face in this part of the country.
First, I’ll talk with Mona Mahajan, head of the Investment Strategy team at Edward Jones, who will discuss investment opportunities you can start taking advantage of today as well as how to navigate the current market uncertainty, followed by analyst Facundo Abraham, who will discuss how clients can manage other types of uncertainty, beyond the markets. Let’s kick it off with Mona.
MONA: Hi, Daniel. It's great to be with you!
DANIEL: Glad to have you with us! You might have noticed a gift on your desk.
MONA: Yeah, I was wondering about that.
DANIEL: Well, don’t open it just yet. I know that waiting to open a gift can drive anyone nuts, but we’ll get to that later.
MONA: Ha sounds good, I'll try to be patient. And I'm certainly looking forward to our discussion.
DANIEL: Well, let’s get started. I would love to start with your view of the economy. We know there has been a lot of uncertainty this year, between tariffs, trade, and taxes. What are you watching, and how do you expect this uncertainty to impact economic growth, particularly in Northern California and Hawaii, over the next year?
Mona: Thanks, Daniel. It's an interesting point because despite some of the uncertainty and headline noise, we are seeing a U.S. economy that is holding up pretty well. We know economic growth for the first half of the year is about 2.0%, driven by positive consumption and some increase in tourism in areas like Hawaii. The labor market has been resilient, despite fluctuations in labor supply and demand, with an average unemployment rate still in the low 4% range nationally. In Hawaii, it's even lower at around 2.8%, but in Northern California the unemployment rate is a bit higher than the national average at around 5.8%, which might have to do with the tech sector layoffs we've seen in recent months – although technology companies overall continue to invest and perform well. And inflation is still contained in the 2.5% - 3.0% range, even with tariffs moving higher.
Now as we look towards the back half of the year, we could see economic growth cool, but we don't expect negative growth or a recession. Keep in mind, companies may have stockpiled inventories at lower tariff rates, and they could be replenishing these at higher tariff rates. This may increase prices on certain goods and put some pressure on consumer demand.
However, as we look towards 2026, there is a possibility that growth re-accelerates once again, especially if we see a stabilization in prices, the Fed lowering interest rates, and the fiscal boost from the tax bill kicks in too.
Daniel: Thanks, Mona. It sounds like we could see some softness, followed by hopefully a recovery in the economy next year. Now how about for stock markets? We know this has been a bumpy year in the markets for investors, but as of mid-year, the stock market has turned positive for 2025. Do you expect that to continue, and what are you watching?
Mona: You are spot on Daniel. It’s been a bit of a roller coaster ride for stocks this year, with the S&P 500 falling nearly 20% and then recovering over 25%. We've had a nice run in markets, but keep in mind in any given year, two or three pullbacks are the norm, and we could see bouts of volatility ahead.
But perhaps the one key factor we are watching is corporate earnings growth. We know earnings underpins stocks, and the good news is that we continue to see positive earnings in 2025. Sectors like technology and AI, which are particularly relevant to Northern California, healthcare, which is a growing sector in Hawaii, and financial services should all see single or double-digit earnings growth this year, and this could grow even more next year.
So we think stock market volatility could also lead to opportunities for investors – to diversify or add quality investments at better prices.
Daniel: Thanks, Mona. Great point on using volatility to our advantage. So can you pull it all together for us. Where do you see the opportunities in financial markets now?
Mona: Absolutely. We still think diversification is the name of the game for investors, and we believe you should own high quality investments in both stocks and bonds – this can help provide downside protection during market volatility too. What do we like? We favor U.S. large-cap and mid-cap stocks, and for those looking for income in their high-quality bond portfolios, we see value in 7-to-10-year bonds, which offer yields between 4% and 4.5%.
From a sector perspective, we continue to like both technology and AI companies, which we think still have a strong growth story ahead, but we would balance these with value and cyclical areas. We like consumer discretionary, financials, and healthcare sectors. But above all, we believe having a financial strategy that is tailored to your goals and risk preferences – and sticking to it – is key to achieving your long-term financial goals.
Daniel: Excellent insight, Mona. We are big proponents of helping our clients develop custom plans and solutions. Final question for you - Are there any tips you'd offer to investors on how to navigate a volatile market environment?
Mona: Great question to end our discussion on, Daniel. One thing we often return to as long-term investors at Edward Jones is the idea that time in the market is better than timing yourself in and out of the market. We know, for example, inflation and cost of living in Hawaii and West Coast regions are higher than average but investing in equity markets has been historically a good way to offset inflation. Over the long-term, stocks have returned 7-10% annually, higher than almost any other asset class.
Staying invested helps you not only take advantage of that power of compounding, but also helps avoid fees or costly timing mistakes. I always say that if you want to sell a stock or investment, you have two decisions to make – when to sell and when to buy back in. And most investors are not great at market timing.
So while we are proponents of having an asset allocation strategy and taking advantage of pullbacks or volatility, we also favor staying invested, staying diversified, and staying the course.
DANIEL: Thanks, Mona! That was fantastic and very insightful. As always, if you have any specific questions related to your unique situation, please reach out to your financial advisor. Now, let’s take it over to Facundo!
FACUNDO: Hi, Daniel! I see the same gift magically appeared on my desk as well.
DANIEL: It’s not the same, but it is similar and related to the Pacific Coast to give you a hint.
FACUNDO: Can’t wait to find out what it is!
DANIEL: Facundo, market uncertainty has undeniably been top of mind this year. But market performance isn't the only uncertainty our clients face, right? For example, here on the Pacific Coast we are at risk of natural disasters, the recent wildfires in Los Angeles and Maui come to mind. I'm also thinking that we have a lot of folks working in the tech sector, which has been quite unstable lately.
FACUNDO: Hi Daniel, thanks for having me! You're absolutely right and that's something I think is often overlooked. Life is unpredictable. What's the famous saying? "Nothing is certain except death and taxes." So, even the best laid strategy can get derailed by things we don't expect, which includes market uncertainty but also—as you noted—things like job uncertainty, natural disasters, or medical events.
DANIEL: Absolutely. These events can cause a lot of emotional distress, but can you help us understand their financial impact?
FACUNDO: Of course! Since California and Hawaii are among the states with the highest cost of living, unexpected events can be quite expensive. For example, if you need to go to the hospital and don't have insurance, it could cost over $100,000 in California – 50% more than in the rest of the country. Even if you do have insurance, the out of pocket costs can still cost thousands. Or if you need long-term care in Hawaii, you could be spending almost $200,000 per year. These aren't pennies. But just like with your investments, a financial advisor can help protect from the unexpected.
DANIEL: Right, it's not just about protecting our client's investments. We want to help them more holistically. So, say we have a client that's concerned about unexpected events, what can they expect from Edward Jones?
FACUNDO: Good question. To start we can help them figure out which strategies they can use to help protect their finances. Whether that's buying insurance or having dedicated savings, such as an emergency fund.
DANIEL: Alright. So, let's focus on natural disasters, which those in California and Hawaii might be all too familiar with. What specific strategies can investors use to help protect against these disasters?
FACUNDO: Yeah, I'd say having home and auto insurance, and, most importantly, making sure these policies have the right level of coverage, is essential. I'd also recommend having a well-funded emergency fund. This can help, for example, pay for costs that insurance doesn't cover (like deductibles) or take care of your family during the first days after a disaster. Also, we know that in recent years it has been harder to get coverage. In California and Hawaii many carriers have reduced coverage or left the market entirely. And coverage through the state-run insurance programs, known as FAIR plans, is limited. An emergency fund can help cover at least some of the costs you aren't able to insure.
DANIEL: That's good advice. I want to note that Edward Jones doesn't offer home and auto insurance policies.
FACUNDO: That's right. At the end of the day, we want to help our clients achieve their goals. So, we want to understand all aspects of their finances, beyond the investments or products we offer. For instance, when it comes to home insurance, we can educate on things to pay attention to in these policies. Or common mistakes to avoid, like missing coverage for key risks. Also, we know that these days it can be hard to find affordable coverage. So we can help clients incorporate insurance premiums into their budget. We don't want anyone to forgo coverage on what's probably their largest asset because they think they can't afford it.
DANIEL: Great point. Before we wrap up, as I mentioned earlier the tech sector has been experiencing layoffs the past few years. What can someone working in that industry do to prepare for any potential shake ups?
FACUNDO: Yes, if you're worried about layoffs, I'd say review your emergency fund and, if needed, add more money to it. In general, we recommend having about 3 to 6 months of total monthly expenses. If you are particularly concerned, you can go above that. But be careful, you don't want to have too much in cash and disregard your other goals.
DANIEL: That's very helpful. Thank you, Facundo! Okay, the moment you all have been waiting for ...
MONA: Can we open our gifts now?
FACUNDO: Yeah, I’m dying to know what it is.
DANIEL: Go for it! I know the market this year has been a tough nut to crack …
MONA: Oh, good one, Daniel!
DANIEL: Fun fact: Hawaii is renowned for its amazing macadamia nuts and California produces 80% of the world's almonds. I just wanted to give you a token of my appreciation for being here today to impart your knowledge and wisdom. While it’s been a fairly nutty market this year, our clients can feel confident that they have their financial advisor and teams of strategists helping guide them through whatever the market, or just life in general, throws their way.
MONA: Thank you so much, Daniel!
FACUNDO: Yes, thank you so much, Daniel!
DANIEL: My pleasure and thank you so much to our viewers for being with us today. We hope you found this information helpful. Of course, your financial advisor is just a call or email away to answer any questions you may have. They know you and your situation best, so they are your top resource for helping you meet your unique needs and goals. Thank you and happy investing!