Last year’s tariff shock hit a sturdier economy. This year, growth is weaker, inflation is hotter, and the risks are piling up.
KEY TAKEAWAYS
A year ago, Liberation Day hit a market that was already under pressure, but the broader economy was still on firmer footing. Today’s market sits at a similar technical crossroads with a much weaker macro foundation underneath it.
The visible market recovery over the past year masks quieter damage caused by tariffs that never fully disappeared. Those costs have been absorbed through supply chains, corporate margins, and household budgets.
Current macro conditions are much less forgiving than they were a year ago. Core inflation remains elevated, GDP growth has slowed sharply, the labor market has softened, and oil prices have added a fresh inflationary shock.
The Fed is in a much tighter corner than it was during prior market scares. Slower growth and sticky inflation create the kind of policy tension that leaves less room for an easy rescue.
The popular comparison to the 1970s may lead investors in the wrong direction. The better opportunity may be in understanding that quality technology has already repriced and could rebound hard when conditions stabilize.
MY HOT TAKES
The tariff shock from last year was never fully resolved; it simply became less visible. The economic drag kept building even after the market moved on emotionally.
The reason this anniversary matters is not nostalgia, but context. Similar-looking market stress can mean very different things depending on the strength of the economy underneath it.
Calling this stagflation or not is almost beside the point. Weak growth and sticky inflation are already doing the damage, regardless of the label.
A lot of investors may be preparing for the wrong kind of regime. This does not look like a textbook 1970s rotation trade as much as a modern, compressed repricing followed by an eventual violent recovery in quality.
The winners in this environment are unlikely to be the investors who nail every turn. The winners will be the ones who know what they own and do not lose discipline when volatility gets loud.
You can quote me: “The math does what it does regardless of what we call it.”
Liberated! Where were you a year ago? Emotionally, mentally…financially. It’s just days away from the anniversary of Liberation Day. I watched it, like you probably did, on TV. I glanced up to see the President holding up the placard with countries and their respective new tariff rates. To be clear, we were expecting, because the President told us it was coming. What I–to be honest with was not expecting–was the eye-watering rates that appeared on the poster. I jumped out of my seat and quickly walked closer to the screen that hangs in my office–I had to get a closer look to make sure I wasn’t imagining them. I then fumbled for my phone to get pictures, so I could tuck in and do all the math, which consumed me well-past the last ferry out of the city that night.
By this time last year–pre-Liberation Day–the S&P 500 was already under a bit of stress, off by some -5% year-to-date, and down by just over -9% from its 2/19 high. Last year at this time, we were less that 1% from correction territory on the S&P, while Friday’s close took us to the warning track at -8.7% off its recent high. The pain is… well, comparable.
By now, we all know what happened after that fateful day a year ago. Liberation Day came and went, the pain got worse, before it got better and by summer, we were making fresh highs once again. Looking at the chart that follows, one can easily miss the whole story. Let’s have a look back at the year since Liberation Day and see if we can’t learn something to inform us about where we are right now–at another very clear crossroads for the markets.
If you just step back and just have a quick look at my chart, you are likely to parse your lips and release a “hmm”--as in a “that wasn’t too bad.” Really, the surface-level story of the past year is actually a rather tidy one. Markets crashed, the President blinked, the TACO trade was born, and by autumn, investors were back to talking about year-end targets and AI-driven earnings revisions. 🚀 The chart looks like a bad dream that resolved itself. But here is what the chart does not show you: the year of grinding damage that happened quietly underneath the recovery. The tariffs that remain–the Section 232 taxes on metals, autos, and semiconductors, the China-specific Section 301 levies, and the 15% global surcharge Trump imposed the same day the Court ruled–never ACTUALLY went away. They have been working their way through the cost structure of the US economy one supply chain at a time, one earnings call at a time, one grocery receipt at a time. By January of this year, the average household had paid roughly $1,700 (I got this from the Yale Budget Lab) more due to tariffs than they would have otherwise. US manufacturing, according to ISM PMIs, has now contracted for nine consecutive months. The liberation that was promised has not quite arrived for most American consumers.
Now layer on what is happening in real time as we approach this anniversary. Core PCE–the Fed's preferred inflation gauge–is sitting at 3.1%, a full percentage point above target. GDP growth was revised down to a meager 0.7% annualized rate, according to that revision. The February jobs report came in at a loss of -92,000 positions, against expectations of a gain. And oil, thanks to the ongoing conflict in the Middle East, has been trading near $120 a barrel, which functions as a tax on everything that moves, everything that is manufactured, and everything that is grown. You know my famous quote: “oil IS the oil of all industry.” Moody's Analytics– using their AI-driven recession model–just put the probability of a recession within the next twelve months at 49% based on February data. That is before the full weight of the Iran oil shock was reflected in the numbers. Mark Zandi, the model's architect and respected economist, has said publicly that the next data update will very likely push that figure above 50%. In eighty years of backtesting, every time that model has crossed the 50% line, a recession has followed within a year. Every single time.
This is why I keep saying the anniversary matters. This is important. 👀 A year ago, when Liberation Day detonated, the underlying foundation of the economy was in fundamentally better shape. Inflation was cooling toward the Fed's target. The labor market was still adding jobs. Oil was manageable. The TACO trade worked in 2025 because there was something solid to snap back to when the pressure became too great politically. Today, that foundation has been eroded. The tinder is dry in a way it simply was not twelve months ago.
And the Federal Reserve, which served as the silent backstop behind every 2025 recovery, now finds itself in the most uncomfortable position a central banker can occupy. Jerome Powell stood at the podium just two weeks ago and was asked directly whether this environment qualifies as stagflation. He refused to use the word, saying he reserves it for "a much more serious set of circumstances." I understand why he chose his words carefully. But when you are simultaneously looking at 0.7% GDP growth and 3.1% core inflation with oil threatening to push both in the wrong direction at the same time, the semantic debate about whether we have earned the right to use that particular moniker feels somewhat beside the point. The math–and I always say this–does what it does regardless of what we call it. ←You can quote me on that! In fact, please do. 🙂
So where does that leave us at this… er, uncomfortable crossroads? I want to be honest with you, because that is the whole point of what I do here. There are legitimate reasons to believe this does not end in catastrophe, and I think they deserve your attention. An Iran ceasefire or even a meaningful de-escalation would remove the single most dangerous accelerant in the current environment. Oxford Economics has said a global recession requires oil above $140 for a sustained period–we are not there yet, and the situation is not irreversible. The political calendar matters too. The midterm elections create real pressure for Washington to find off-ramps before the damage becomes permanent. None of that is wishful thinking–it is how situations like this have historically resolved.
But here is where I want you to think carefully, and where I think the real opportunity and the real danger live simultaneously. The comparison everyone is reaching for right now is the 1970s stagflation playbook–rotate out of growth, buy hard assets, hide in commodities. And I understand the instinct. But I think it is the wrong frame for 2026, and I think acting on it could be one of the more expensive mistakes an investor makes this cycle. The original Nifty Fifty included names like Polaroid, Xerox, and Avon–companies trading at 70, 80, even 90 times earnings whose competitive advantages proved far more fragile than investors believed when inflation began dismantling their margins. Those technology names in particular never recovered their former glory. Today's technology leaders are not Polaroid. They are not Xerox. They own infrastructure that did not exist in any prior era of market history–and this is a key observation. Microsoft, Nvidia, Apple, Alphabet–these companies generate free cash flow at margins that simply did not exist in any prior era of market history. They own the infrastructure of the digital economy. The AI capital expenditure cycle continues regardless of what happens to oil prices or tariff negotiations.
Here is what I think is actually happening. The rotation that took years to unfold in the 1970s has, in many respects, already occurred. The Nasdaq is almost 10% year to date. The compression in technology multiples has happened in real time, in public, in a matter of weeks. And when resolution comes, and it will come, in some form, because it always does, the snap-back in quality will be VIOLENT and fast. Faster than any rotation we saw in the 1970s, because today's market is algorithmic, options-driven, and globally interconnected in ways that Arthur Burns and Paul Volcker could never have imagined. We already saw the preview on April 9th of last year, when the S&P gained nearly 9.5% in a single session after the tariff pause was announced. That was a preview. The feature film, when it arrives, will move faster than most investors can react. 😰
The investors who come out of this period intact will not necessarily be the ones who called the bottom perfectly or rotated into the right defensive sector at the right moment. They will be the ones who understood what they owned, held quality through the noise, and had the discipline not to chase the resolution trade after it had already moved without them. These are uncomfortable times. Patience and nerves are worn thin. Take a breath–you know how to win this game–you have done it before.
FRIDAY’S MARKETS
Friday was… not pretty across the board, with the S&P closing down -1.67%, the Dow off -1.73%, and the Nasdaq leading the decline at -2.15%. Each index, settling at its lowest level since August, and marking 5 consecutive weeks of losses. The culprit was oil, where Brent crude settled at $112.57 a barrel, its highest level since the conflict began, as fresh incidents in the Strait of Hormuz deepened investor skepticism that any resolution was coming soon. Treasury yields told the same story, with the 10-year hitting 4.48% intraday, which is its highest since July, as the bond market continued to price in a higher-for-longer reality that the Fed has no clean answer for. The VIX closed at 31.05, up more than 13% on the day, which is about as honest a read on investor sentiment as you are going to find. 😱
NEXT UP
No economic numbers today, but a HUGE week ahead. Markets are closed on Friday for Good Friday. On the calendar is Conference Board Consumer Confidence, JOLTS Job Openings, ADP Employment Change, Retail Sales, PMIs, Non Farm Payrolls, and Unemployment Rate.
Jerome Powell and NY Fed Head John Williams will speak today. You had better pay attention! 👀