Quarterly Market Insights: A Special Talk CNY Series - 2025 Q1 with Ken Entenmann

Talk CNY - Quarterly Market Insights presented by NBT Bank features Ken Entenmann, Senior Vice President, Chief Investment Officer and Chief Economist for NBT Bank.

Ken joins us to share what's happening in the markets and how it impacts you.

Kenneth J. Entenmann is Senior Vice President, Chief Investment Officer & Chief Economist at NBT Wealth Management. Ken has over 3 decades of investment experience. Prior to joining NBT Bank, he served as Director of Investment Management at Alliance Bank.

In his current role, he oversees more than $6 billion in assets under management and administration in Trust, Custody, Retirement, Institutional and Individual accounts.

Entenmann graduated from Cornell University with a bachelor's degree in Applied Economics and Business Management. He also graduated from William E. Simon Graduate School of Business Administration at the University of Rochester with an MBA. He has also earned his Chartered Financial Analyst (CFA) designation.

Ken is a former Board member of the New York Bankers Association and was the Chair of the Trust and Investment Committee. He has served on the board of the Central New York Community Foundation from 2006-2012. He currently serves on the Roman Catholic Diocese of Syracuse's Investment Advisory Committee.

Transcript

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Welcome to Quarterly Market Insights, a special series part of CenterState CEO's podcast Talk CNY, presented by NBT Bank. This quarterly series will provide a data-driven economic analysis and how it could impact you and your business. Well, welcome everyone. Ken, thank you so much for joining us again here on Quarterly Market Insights. It's been an interesting few days. I think normally when we do this recording, we don't necessarily provide a specific context of a day, but I think it's important for folks to know it's April 9th, 2025. And so for anyone that watches, at least the market itself is going to know that it's been a wild few days, and I think as we were preparing for this session together, we were talking about the impending tariffs, the potential for some challenges or uncertainty. We also were originally going to do this before a jobs report came out. Now it's after, which I think is great for the ability to kind of talk through all of that. There's a lot going on. Sure is. So let's dive in. We can start kind of with what we're seeing today in terms of the market rallying again after some conversation around pausing some of the tariffs. And then we can go from there and talk about what we're seeing more broadly from the economy, not just from the market, but from the other indicators. And then we'll finish by talking about what's happening here in the region and some of the X factors that we have. Well, great. Well, it's great to be here. Thank you, Andrew. And yeah, so it's been a really tumultuous couple of, really a week or so. April 2nd is when the original tariffs were announced and it's created enormous volatility in the marketplace. But today, roughly around one o'clock, two o'clock in the afternoon, the Trump Administration announced a 90-day pause on tariffs against everybody except for China. And they actually increased tariffs against China. A very tumultuous, great degree of uncertainty in the marketplace, really settling things down today. And two things happened this afternoon. One, there was an auction of 10-year treasury notes. So the fear was foreigners were going to walk away and interest rates no longer buy our treasury securities, and that would spike interest rates with obvious negative consequences. And then we had the auction at one o'clock and it went extremely well. So that dispelled the notion that interest rates were going to spike materially higher, at least for the time being. So that was really good news. And then shortly thereafter, the President announced that they were having a 90-day pause on the reciprocal tariffs. They'd still have a 10% tariff and that they were going to begin negotiations with 75 countries in terms of getting better deals. Now, I do think that the threats seem to have brought people to the table and the market, which was down as much as 900 points today as we started this podcast, was up 2,500 points. And that is on the heels of literally thousand points swings in each of the last three or four days. So tremendous volatility. Hopefully this announcement in a 90-day pause will make that volatility subside a little bit and everybody can take a deep breath. If you really want to take the optimistic viewpoint, hopefully this will result in a much better trade environment across the globe with our friends and allies. And if that's the case, I think that would be a really big positive for economic growth, not only here in the United States, but around the world. I also think it will allow for the rest of the world to concentrate on China. So lots of volatility, tumultuous couple of days culminating today, but I think the 90-day pause may give us a little bit of a window where we can take a breath. I think two things that we've talked about in the past that this week has really driven home and reinforced. One is don't panic when it comes to the markets. They're not necessarily tied to exactly the way the economy is trending. We saw that beginning of 24 when all the indicators were soft landing or slight recession, but the market continued to be a bull market. So I think it's important to remember that because I know that I looked two days ago and my 401k was down almost 10%, and I was feeling it. I was like, this is significant. But I also know that almost all those losses I've made back today, and if I had made choices to get out, then I'd be in a world of hurt. So hopefully people aren't panicking themselves. And from a personal perspective, taking that tactic. I think that the last few days reinforces a lot of that. I look at what we do at NBT Wealth Management, and we run a bunch of different allocation models, but our 60/40 model portfolio, which is pretty much where most individual investors should be, some more aggressive, but that is kind of a classic diversified portfolio. Prior to today, was down four and a half percent. Now, I don't like talking about negative returns at all. Sure, of course nobody likes to see that. But a four-and-a-half percent negative return given all the turmoil in the marketplace shows the power of diversification. When you have go-go markets like we've had in the last couple of years, where you have AI stocks going up 3000%, I wish I had a dollar for every time somebody came to me and said,"Why do I need bonds? Interest rates are close to zero. They're not doing anything for my portfolio. Why do I need them? Why do I need international stocks? The U.S. market's done so much better." The answer is those are two of the best drivers and preservers of wealth in times of crisis, and we're in a time of crisis. So my story is always going to be make sure you're properly diversified. If we're talking about your personal 401k, make sure the risk profile matches your age. If you're closer to retirement, you should be more conservative. If you're a youngster in your twenties and thirties, you can afford to be in stocks. I almost thought you were going to include me as a youngster. Well, I think you're kind of on the fence there. So, make sure it's right-sized and just don't get too far into the risk spectrum because stuff happens and we don't know why and when sometimes it happens for what we think is one reason, and it's another. But the power of diversification rings true whenever you have a crisis. That's what we try to do at NBT Wealth Management and hopefully everybody's doing it. You need to stay invested and stay in the markets. And even when you have tumultuous markets with big downsides, it's typically 18 months max before you get back to square one and continue growing. So the big moral of the story is stay invested and don't panic. I appreciate that advice, and today I'm glad that I followed it. There you go. I think the second thing that's important to understand is we've talked a lot about the tariffs, and I think our conversation has always been they're a negotiating tactic. To think that tariffs are something that are going to influence reshoring or things like that, sure, but only if you can say that they're going to be in place for a decade or more, which is the lifespan of the decision making on the ROI that companies make for investments like that. So we've always known that kind of discussion around, oh, we're doing this to bring jobs back. Are we doing this to get better trade deals? Yes, I think that's playing out and we're seeing that if what we're hearing is true about those 74 countries coming to the table and we can negotiate those better deals. That is great, and I think it's going to behoove the global economy as a whole. Right? At the end of the day, everything that they've done and said, they said they were going to do right, even the tariffs at 25. I think the tariffs came in much more on the higher range than people anticipated, and that's why there was such a big negative reaction. But 25% tariffs were on the table - part of the messaging of the campaign. I do think they had an inconsistent message and now hopefully this afternoon and the positive, the strong 7% move in the equity markets, I think there's relief that yeah, it is part of negotiating. They're not going to be permanent, but that does bring up other issues in terms of our debt and deficits, because if you're not going to get$600 billion in revenues from tariffs, and it was never clear that the government was going to get that in the first place, but not withstanding that's $600 billion, you don't have to offset things like tax cuts and other spending priorities. So we're not out of the woods just yet. That definitely raises other questions. I think the other thing that we're seeing right, is one of the key indicators of where we're headed. We had a strong jobs number that came out last week, not drastically better than anticipated, but better than anticipated, which shows consistent growth. It's still in that kind of one and a half, two percent where we were talking about what we expected maybe to see this year. Is there anything that we can, other than what it is, is there anything we can take away from that or use that information in our long-range planning as it relates to where we're going? I think the good news, and certainly retail sales and the employment number that you're mentioning, where we had, I think 255,000 new jobs, the economy is in a pretty good spot starting this year, and all this turmoil didn't start until really April 2nd, so it was after the end of the first quarter. So while the economy was clearly slowing from a pretty strong pace of 2.5% in 2025, it started to slow in the second half of 24, excuse me. It started to slow, and most forecasts were in the one-and-a-half to two percent range. And then all of a sudden, economists started coming out and saying, this tariff talk is maybe going to, because of the uncertainty, and the fact that individual, if you're thinking about buying a house and you think there might be a recession, you're going to wait to buy that house and wait for interest rates to come down due to the recession. Or conversely, if you're a CEO and you're thinking about launching a new product line or building another plant, you're going to call a timeout, too. Just the uncertainty puts a stall on economic activity. So we saw that slowdown, but I think the good news is we're starting from a really solid footprint where you have GDP hopefully in that one-and-a-half to two percent area. You have unemployment that's still low. Every print in the unemployment report for the last 12 months has been between four and 4.2. That's historically close to full employment. So that's a really good starting point. It doesn't mean we can't see weakness in the employment market, and then the inflation numbers were trending in the right direction. I would argue they've kind of flatlined, and that's the sticky inflation we've talked about, but it's a lot easier to digest sticky inflation at 2.8% versus nine. That's kind of the foundation that we were starting on. Even if the economy were to slow, I think the likelihood that we go into this deep, dark recession like we experienced in the financial crisis or in the seventies, I think that's highly unlikely. Yeah, there's just too many things that are positive indicators, the jobs, the other things that are, we're starting from a good place, as you said. So that's really encouraging and good to hear. Of course, we're not talking crystal balls here and nobody has those, but that's where we're headed. I think one of the other things that we talked a lot about prior to this, which we've lost a little bit with some of the other uncertainty coming along was we were seeing kind of a softening in the consumer confidence index. We've talked about the three major drivers of the economy. Is that anything that we should be continuing to I know we've talked about different reasons why we think that is, but what's your take on that? I'm a little suspect of what economists call the soft data, which is survey data. Things like the University of Michigan, which is down three consecutive months. But I'm not surprised when everyday you turn on the TV, you have this tumultuous negativity of tariffs and recessions and trade wars. I mean, it has been an ongoing drumbeat of negativity. And so it's not surprising that consumer confidence goes down. I would also add that the consumer has been anticipating a recession for three or four years, and it never happened. And most importantly, and this is why I'm a little suspect of the soft data, is the consumer has been acting in as - don't do, as I say, do as I do. They have been voicing all kinds of concerns and spend it. Then, keeping up a pretty torrid spending pace. I do think the one thing that is real and worrisome for our economy is we do have a bifurcated consumer market. The high end is in really good shape, and maybe this recent sell off in the stock market puts a little bit of a dent in that, but they're in pretty good shape, and they have certainly maintained their spending habits, the lower half, and particularly the lower quartile of income, they've been most impacted. We've talked about this before by inflation. So they're struggling and I think they're struggling more. And so you can start to see some cracks in credit card debt and delinquencies and things of that nature. So it's not a pristine world, but it's far from a crisis environment. I do not anticipate that the consumer's going to fall off a cliff. Most importantly, when it comes to consumer spending, by far and away, the biggest driver is employment. If you have a job, you tend to spend money. When you get laid off, bad things happen. As we just touched on, the unemployment rate's hovering at 4%, and I don't anticipate, and hopefully this trade nonsense will be behind us, but I don't anticipate that the economy's in a position where unemployment's going to spike from 4% to 6%. That would really crush consumer confidence and certainly have an impact on consumer spending. I think we've talked about that before too. Things that influence that are more anecdotal. Right. No doubt. We were talking about the price of eggs, and a lot of people look at that and they're like, oh my goodness, I was paying $6, $7 a dozen. And they're pointing to, who knows, all sorts of things, right? Oh, it's the president's fault or it's this thing's fault. And really that's the reality of something not at all tied to the economy. It was the avian bird flu, right? Correct. And suddenly the prices are going down. Well, what most people don't realize is we've struck a deal with Germany, and we're importing a lot more eggs from there right now. And so that's the value of a good trade balance global economy. Exactly. Now they're down to $4.50, $5 a dozen, which is still higher. But to your point also, there is definitely an imbalance in terms of where this pain is being felt. And so as an organization that feels very strongly about making sure that we're creating opportunities for everyone within the region, we get some of that inbound, and we have to think about what are ways that we can help solve some of those challenges or mitigate that. But from a macro global economy standpoint, it's not necessarily pointing towards an imminent recession or a deep recession, but again, as you said, we've got this 90-day pause. There's lots that could happen, lots that could change. We've learned from this administration that the tactics can be different. And so it's something that we're going to continue to monitor and be focused on. I think it's a great opportunity for us to pivot and continue to think more about what's happening here. We've said it before, and I want to make sure our listeners hear it. Every indication for us is that this Micron project is moving forward. Despite the comments around the project was funded through the Chips and Science Act, and the president has been very vocal about his desire for Congress to make a change on that, but they have a contract with the federal government. It's for billions of dollars. The likelihood of that They're continuing to invest in their environmental review and making sure that everything is done the way that they need to have that done. Right now, groundbreaking is planned for November, and so we're still anticipating that. So I think what's interesting is that we've talked about Central New York always being kind of not in lockstep with the global economy. We don't see the peaks, we don't see the valleys, because we've just kind of had this flat diversified base of an economy this time. I think if we do see something happen globally where there's more of a recession, we may buck the trend the other way and see at least marginal growth. Certainly not what we would anticipate if everything's going gangbusters. So there are positive things for us to be focused on here in the region, for sure. There are a lot of things in the Chips and Science Act in terms of mandatory labor requirements and other things in there that one could pick apart a little bit. But I think as it relates to Micron, it's too far down the road. It's happening as we speak. But I also think it is good evidence that these things don't happen overnight. There are always, so you just don't plop up a manufacturing plant and three months later, everybody's busily producing widgets. It takes an awful long time, and therefore it requires that long-term strategic initiative. I think one of the things that CenterState's doing that's so critically important in partnership with some of our local colleges and junior colleges, if you're going to onshore some of this high-tech manufacturing, you have to have the skilled labor. So doing things like the clean lab over at OCC to start to school people up, whether it's the people cleaning the lab or actually making the chips, it requires a higher, you just don't learn that overnight. I commend CenterState for their efforts in doing that because it's vitally important and really what we want to do as a country, that is where our value added it. To your point, I can put some real numbers to this. It took Micron a year and a half just to select the site, and the announcement came October of 2022, and it'll be more than three years before they're shovels in the ground for projects of this size. So you're talking about a four-and-a-half-year For them to make a decision, put shovels in the ground. And by the way, then it's still almost two years before they're actually turning chips out of that facility. Correct. To think that any kind of policy that isn't, at least that far reaching is going to impact those kind of decisions is challenging. But it also is challenging for the region here who has been hearing about this for a long time and nothing's happening. And then you have national rhetoric around the act that got it in. So we recognize there's a lot of skepticism, but it's moving forward. I also would encourage people to manage their expectations when it And I hope all of it happens. And it's certainly encouraging when you see the number of announcements across all different industries, auto, semiconductors, technology, data centers, all these hundreds of billions of dollars of advertised. We'll see if they ever come, but there's a lot of reinvestment occurring. But the caution I would have is the notion that these factories are then going to rejuvenate all these, they're going to have amazing, but the idea that there's going to be 10 or 15,000 people working at the old steel plant, that same steel plant and their industrial output requires a fraction of the people that it used to be. So if people have the mentality that we're going to bring back the old steel mill and 10,000 people are going to work at the steel mill, it's more like 300 or maybe a thousand. It's not, right? So I think people need to manage it. That doesn't mean we don't want to do it, because as CenterState has pointed the amplification of the jobs around it, the construction, the restaurants, the banks, all the things that need to support that microcosm is enormously powerful for economic activity. And so it's really exciting that the Micron project is continuing on. I have no idea why banks would be something that you of your examples. Yeah. Here we go. I think for us, it's super exciting that this is happening and we've got all this opportunity in front of us. And I think we are also seeing a lot of that reshoring happening, candidly, not even driven necessarily by policy or trade imbalances or things of that nature. It's actually being driven by market reasons because people had such disruption in their supply chain during COVID that what we're seeing is not actually reshoring, it's nearshoring. Right. And so they're not saying we're going to bring all of our production here, but they're saying we're going to bring some somewhere that we have access to it. So we're not caught up in shipping lanes, or we're not caught up in the Panama Canal when a ship goes off course and hits the side. Not that these things have happened, they have, but I think we're seeing some of that too as a result of the disruptions from COVID. Yeah, and I think COVID clearly was enlightening, and we'll tie it back to our original discussion today, which is diversification of an investment portfolio. I think many of our largest companies got caught in COVID by not having a diversified supply chain. And Apple was a hundred percent manufacturing in China, and now they have invested in India and some other places. So they have diversified, but they weren't. And COVID was very painful. And now if China's going to be a focus of really the focus of the trade wars, and again, the president announced even further tariffs on China today, that's going to disrupt that supply chain. So that nearshoring, it's been 30 years since I was in business school, but just-in-time inventory was the cool thing. You don't have inventory. Everything's closed, everything gets delivered. Well, when you have that major disruption, just-in-time inventory doesn't work. It throws everything off. It could take years to recuperate from it. So I do think optimistically that the nearshoring or onshoring will happen, if anything, just for the diversification of the supply chain. You can't have all your eggs in one basket, whether you're manufacturing or services or not. So, I am very optimistic about our country, our country's economy in the long run. The long-term prognosis I think is fantastic. Ken, always a pleasure. I think we've had an interesting few days. I'm sure we'll have a lot more to talk about when we come back in three months. And I'm looking forward to that and enjoy this ride and the second quarter. I bet your phone is ringing a lot these days, which is great. It's been interesting and hopefully this 90-days will give us a little bit, allow us to take a breath and concentrate on it. But I think CenterState does a great job of thinking long-term, and I would encourage people when it comes to investments, particularly in these periods of heightened volatility, you got to think 3, 5, 10 years down the road. And today's a perfect example. If you sold when we were down 900, we were up 2,500. That's a big swing if you panic. So take a deep breath. Focus on the long haul. We'll be okay. Ken, I appreciate you. I appreciate NBT Bank. Thank you. Thank you so much for being here. Thank you for tuning into Quarterly Market Insights, a special series, part of CenterState CEO's podcast, Talk CNY, presented by NBT Bank. 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