With tariffs, inflation noise, and Fed chatter swirling, here’s what actually matters for investors.
KEY TAKEAWAYS
Markets are wobbling heading into the holidays because of hawkish Fed talk
Volatility is normal and is the cost of long-term returns
A December rate cut or lack thereof will not change fundamentals of major companies
Labor market weakness is emerging and will eventually force the Fed’s hand
Long-term investing still wins–thesis and discipline matter most
MY HOT TAKES
Volatility is healthy, not harmful
Fed chatter is noise, not a thesis breaker
AI investment cycles remain intact regardless of near-term rates
Labor data is more important than FOMC theatrics
Conviction separates investors from tourists
You can quote me: “A 25 basis-point Fed cut won’t change a single thing about NVIDIA’s, Meta’s, or Alphabet’s future.”
Worlds collide. You want to think about that Thanksgiving turkey and holiday cheer with family and friends, but alas, the market has other plans for your joy. My longtime followers know one of my favorite lines: “the market rarely does what is convenient for you,” and that statement is certainly holding true over these past few weeks.
You have done your homework. You understand what the key drivers are behind most ( 😂 ) of the stocks in your portfolio. You carefully scrutinized this season’s earnings announcements. You know about the current economic forces that can impact your investments’ success. You have gone above and beyond, seeking out alternative economic indicators while the dysfunctional Senate bickered and starved us of important data. YOU READ MARK’S daily blog posts and watch his videos. 😉 You are informed.
You are not nervous, because you know that long term always wins. Mark showed you the numbers–the hows, the whys, the PROOFS–behind his perpetual battle cry. And yet you are still on edge after the markets’ performance in the past couple of weeks.
You have a diversified portfolio! You love growth stocks–who doesn’t. You invested in stocks whose great prospects make sense. The companies you own have great management! Those leaders have helmed those companies into their top spots on the S&P 500–a feat that is non-trivial–when many others failed. WAIT, WAIT, WAIT… you step back.
You ask yourself, “am I deluded–drinking some sort of Kool-Aid?” You wonder if you bought into some company or investment-like product that pretends to be a currency, which is actually controlled by a bunch of kids, with no business, no income prospects, just pure speculation. But you didn’t! You stayed away from those super-shiny investments, despite your kids’ chiding you and hearing stories of overnight wealth… for the most part (it’s ok if you bought a small amount, as long as you realize that it is purely speculative–like a lottery ticket 😉).
You even held on to some bonds that you bought when you realized that the yields were probably the highest you will see in your lifetime. You remember when you were younger, and probably not yet serious about investing, how bond yields were in the 20s, but as your career grew and you matured those high yields eluded you–you were too late. Bond yields were not worth it compared to the returns that could be earned in the stock market.
But there was a silver lining–low mortgage rates. You bought a home which ultimately became one of your best investments. Now, your portfolio of stocks has grown beyond your wildest imagination and so has your home value. You picked up bonds in 2022 when the Fed got angry and checked your investment prowess. You knew that either you would pocket great yields or reap capital gains when the Fed shifted from angry to friendly eventually.
Earlier this year, chaos slipped into your tidy investment portfolio. Your wealth would be challenged, and you were a bit surprised. A market-friendly President and a pivoted Fed should have been your ticket to ride. Imagine a Trump Put AND a Fed Put. You seriously considered buying a spacesuit 🧑🚀, because your portfolio was headed for the moon. 🚀 Here comes the “inconvenient” that I often refer to.
Inflation, which had been steadily declining, began to slowly pick up again. Sticky services inflation was ebbing, but really, really slowly, ultimately inching lower, nonetheless. The culprit this time was goods inflation, aka stuff. It was actually deflating for some time, meaning, prices were actually getting lower–a rarity. This got the Fed a bit nervous. It didn’t want to act too soon and cause consumers to rush out to their local BestBuy and drive TV prices through the roof.
But there might have been something else. As economists, we know that tariffs are not good things. One shouldn’t trifle with the natural forces of the economy. Adding taxes–tariffs are taxes–would cause consumer inflation as rational companies would pass those tariffs on to consumers. The FOMC, which is made up of trained and self-taught economists, would do their part in the inflation fight by resisting the urge to get rates to their unrestrictive zone.
The administration was intent on its mission to level the economic playing field and orchestrated a Liberation Day, which turned out to be quite liberating–liberating billions of dollars in gains from your portfolios. The markets essentially rejected an all-out, draconian economic world war. This was your first test of conviction! Did you believe in your investments? The Fed Put was on hold, and it appeared that the Trump Put was on hold as well.
Arguably, your assertion that tariffs, some over 100%, would have a long lasting, negative impact on either the economy or your portfolio companies, was spot on. But the President had different plans. He would use the “threat” of those tariffs to gain a negotiation advantage. Ultimately, the settled-on tariffs would be touted as “income” and offset Federal deficits.
Markets raged back, and AI began to deliver on its promises. But AI costs money–investment. Ah, there it is: investment, the reason we are all assembled here today. In case no one told you, you can't make gold from lead. If you want gold, you have to pry it from the Earth’s crust which takes…wait for it… investment. Likewise with AI–or any other technology company–you need to invest in R&D and infrastructure. We are, after all, trying to simulate the complex human brain. 🤔💡
Your investments grew as earnings from the stocks you owned grew–some of them by numbers that were unbelievable. The market is real, the technology is real, and players–most of them at least–were credible. Can those companies keep their edges and continue to ride the wave into the future? Can they realize the continued EPS and cash flow growth needed to justify high valuations? Well, certainly not without INVESTMENT. R&D through hiring and infrastructure, through CAPEX. Cut CAPEX? Diminish prospects. Hire the cheaper, second-best engineers? Diminish prospects. Only the best management teams will be able to walk that very fine line, thread that needle, and deliver on that promise. You held on, because you understand the idiosyncratic risk you are undertaking. The expected return from your investment is ONLY huge because the risk you are taking is high. You have a thesis, it holds, and you check it often. So, you should be good right?
This is a chart of the S&P 500’s daily returns since 1990. You have lived through all that noise, haven’t you. Just have a close look at those returns. You might notice that not all of them are above the red line (those are gains). No, there are lots below as well. You may also notice that there are times when that “noise” is greater than in others. You can consider that noise, market risk. The technical term for that is systematic risk. You can’t avoid systematic risk. But like April showers, the payoff is summer flowers. You are paid for that risk and discomfort!
And, my friends, that is the piece so many investors forget when markets get a little jumpy. They forget that volatility is not an aberration. It is not the boogeyman hiding behind the curtain, waiting to blow up your portfolio. It is the price of admission. It is the cost you pay to access the long-term 10+% returns that equities have historically delivered. Without the discomfort, without the shakes, without the occasional pit in your stomach when the VIX wakes up from its nap, you wouldn’t get those returns. If stocks moved up in a straight line, they would yield the return of a CD. In fact, they wouldn’t be stocks. They would be a polite savings product paying you 2% and a pat on the head–and maybe a lollypop and toaster (if you remember those give me a shout woot-woot).
Volatility is the market expressing itself. It is the market doing what the market does. It is not personal. It is not punitive. It is not a sign that you are suddenly wrong about every investment you made for the last twenty years. It is simply the day-to-day hum of millions of investors trying to digest information, expectations, fear, greed, and the latest economic tea leaves spilled by the FOMC and a few words uttered by Boston Fed President Susan Collins. And let’s be honest, the Fed has been serving a fresh brew of hawkish herbal tea these past few weeks. You have heard it. I have heard it. Everyone with a Bloomberg terminal and half a brain has heard it. The December cut that markets were confidently penciling in is now on shakier ground. Futures went from “it’s happening” to “well… maybe” faster than your kids change their opinions on what they want for dinner.
And so the market wobbled. Of course it did. Markets hate uncertainty almost as much as I hate bad coffee. When the Fed leans hawkish, risk assets adjust. But here’s the key question I want you to really sit with: would a 25 basis-point cut in December, or the absence of one, materially change the fundamental trajectory of your portfolio companies? Would a quarter-point really change NVIDEA’s product roadmap? Would it materially alter Microsoft’s cloud adoption cycle? Would it reverse the AI buildout, shift corporate spending priorities, or cause consumers to suddenly swear off iPhones, sneakers, or groceries? Would it introduce meaningful idiosyncratic risk into Amazon, Meta, or Broadcom? The answer, if you think about it rationally and not reactively, is “no.” The companies you own do not live or die based on a single FOMC meeting. Their prospects are driven by product cycles, competitive advantages, execution risk, demand curves, and innovation. A quarter-percent tweak to the cost of capital doesn’t suddenly vaporize those drivers.
Yet here we are, watching the market convulse like the Fed pressed the wrong button on the espresso machine. It is an emotional reaction. Markets have emotions. Investors have emotions. Algorithms even have emotions, though we call them “momentum.” But none of that changes the fact that long-term investing requires you to be the adult in the room. You let the market do its thing. You let the tantrum pass. You step back, breathe, and revisit your thesis. Is the company still doing what you expected? Are earnings still growing? Are margins still intact? Is management executing? Are competitive advantages still durable? If the answers are yes, then your investment case stands. If the answers are no, you don’t need the Fed to tell you what to do–you already know.
Pullbacks are not only normal, but they are also healthy, and I am on the record in the press with that assertion. They clear excess. They shake out the weak hands. They reset positioning. They recalibrate expectations. Markets cannot climb endlessly without a breather, just as you cannot sprint a marathon. Every major bull market in history has been punctuated by pullbacks, corrections, and stretches of gut-churning volatility. If anything, the absence of volatility would be the bigger red flag. Stability at all times is what precedes bubbles and crashes. A little chaos now and then is the market doing preventive maintenance.
And while the Fed is pounding the table about being cautious, about needing more data, about keeping financial conditions “appropriately tight,” reality is quietly forming its own narrative. The labor market is softening. Not collapsing, not spiraling, but softening in ways we haven’t seen for a while. Job openings have slipped. Continuing claims have risen. Companies are hiring more selectively. Wage growth has cooled. ADP has been printing weak. Challenger Gray has been flashing warning signs. The handwriting is not just on the wall; it’s scribbled across the whole room in giant Sharpie. If the Fed keeps policy at maximum tightness while labor cracks, the risk is not inflation. It is unemployment. And if there is one thing we know for sure about central banks, it is that they fear the labor side of the mandate far more than the price side once cracks begin to widen.
The Fed can talk tough right now, but they will not sit idly by as the labor market deteriorates beneath them. They cannot. They know what happens when you allow labor weakness to compound. They’ve read the history books. They’ve studied the lags. They’ve seen the charts. They understand the political, economic, and psychological cost of rising unemployment, and just how difficult it is to reverse. And despite the current hawkish tone, despite their temporary bravado, they will act when the labor data forces their hand. They always do. You have seen this movie before.
So where does that leave you, the diligent long-term investor who has done the work, who has seen the numbers, who knows the math, who has survived the noise since 1990? It leaves you exactly where you should be: focused on your thesis, watching the fundamentals, and letting the market do the market thing. There is no trophy for reacting quickly to every Fed soundbite. There is definitely no gold star for selling at the bottom. What wins, always and forever, is discipline. Wealth cannot compound without time. What builds fortunes is patience married to intelligence and sprinkled with conviction!
So, take a breath. Let the volatility swirl. Let the Fed chatter. Let the market do what it does. Thanksgiving is around the corner, and despite the momentary drama, the long arc of markets continues to bend upward for those who stay the course. Your companies are still innovating, still building, still hiring (albeit selectively), still selling, still growing. Your portfolio is not hostage to a December rate cut. It is anchored in long-term value creation.
Let the market be the market. You’ve survived every pullback for thirty-five years. You’ll survive this one. And the next one. And the one after that. Because you are not guessing. You are investing. And long-term, investors always win.
Happy early holidays, my friends. The cheer is still there. Sometimes you just have to look past the noise to see it.
YESTERDAY’S MARKETS
Stocks were beaten up yesterday, closing in the red as fears of Fed inactivity in December rise. Investors continued to take profits on winners and seek safe haven investments in stocks with lower valuations–and growth prospects. Bonds also fell on Fed hawk talk leaving few survivors on the investment battlefield.
NEXT UP
We are not likely to get any regularly scheduled economic releases today, even though the government, in theory, is back in business.
We will hear from Kansas City Fed Head and superhawk Jeffrey Schmid, Dallas Fed and junior hawk President Lorie Logan, and Atlanta Fed’s Raphael Bostic, who is neutral and doesn’t vote.
Next week we still have some important earnings announcements. Government data may begin to trickle back in. We will still get a wealth of data from private providers like ADP NER pulse, housing numbers, Leading Economic Index, PMIs, and we will get meeting minutes from the Fed’s last FOMC meeting. That alone is enough to move your market–and your blood pressure–so make sure to check back in on Monday and download your weekly calendar. Your cardiologist approves.