Tariffs, tantrums, and timelines—don’t waste energy chasing noise.
KEY TAKEAWAYS
MY HOT TAKES
Choking hazard. As a kid, do you remember being told to chew your food carefully to avoid choking? I guess one has to be of a certain age to remember that. You know, the days when we sat at tables together and ate real food. Today’s DoorDash-delivered meals eaten in solitary while death scrolling TikTok or Instagram doesn’t really afford us the same opportunities to deliver that timeless advice.
Now, I know that even though I have pleaded with you to focus on the long run, you have checked the markets a lot recently. Don’t worry, I understand. You have every right to wonder about the value of what seems like your rapidly diminishing 401k. You just have to flick on the news to see the headlines of the messy trade banter to know inherently that there will be some price to pay for all the brinkmanship.
A few weeks back, there appeared to be no end in sight for the political rhetoric. The Treasury Secretary and Commerce Secretary were in the press ‘explaining’ economics as if they had, as I put it at the time, ‘left their econ books at home.’ This, because I know that both Secretaries know better. This sent a signal that logic would not be the basis for any negotiation or resolution. It was a trade crusade. This was worrisome for companies, consumers, and markets. The noise crescendoed with a penultimate tariff hike on China followed by the S&P 500 closing below 5,000. Was it the end of days? Something told me that it was not, but just because we weren’t in hell, didn’t mean that we would swiftly get to heaven. I heard one of my CIO colleagues refer to it in an interview as “purgatory”-- quite right.
I spoke to the press on that very night and said something similar but not quite as iconic. I made the admission because I believed that the President was about to transition from the “shock and awe” phase into a negotiation phase. I saw what I thought was the President’s familiar style of dealmaking, and it was encouraging to me. On the following morning, I cautioned another journalist that there was much technical ground to make up and that it would take time for the markets to recover from such a violent downward move.
In the sessions that followed, the President and his cabinet became increasingly conciliatory in not just word but action, putting on hold certain tariffs. Stock markets applauded the move while the bond market was having none of it.
Then came the Powell interview at the Economic Club of Chicago at which the Chair made it clear that there would not be a ‘Fed Put.’ The reason? Uncertainty and the potential for tariff-borne inflation. The Chair referenced ‘uncertainty’ enough times so that it was clear to Fed watchers that he was sending a coded message to the President.
The President got the message and responded with a counterpunch that lit the bond market and currency markets on fire, and that fire spread quickly into the equity markets. Would the President actually attempt to fire the Fed Chairman and risk further decay of faith in US Treasuries and the Dollar? No.
Within days, at least some clarity was forthcoming. The President admitted that he was not planning to fire the Fed chair. Negotiations would progress with trade partners and Bessent agreed that a 145% tariff was unsustainable and that issues would be resolved in short order. Markets bounced on the news. Was it over? Was the trade war avoided? Would everything go back to normal? Could we finally get back to the debate of AI and the ridiculous claim that DeepSeek made all AI infrastructure leaders obsolete; those leaders were all much cheaper now, making them almost irresistible.
Many watched from the sidelines thinking that this would be another epic bounce. The President all but doubled down on his positive rhetoric yesterday helping to propel stocks yet further. Was that it? The buy signal? [insert record scratch sound effect here]
Let’s take a step back… and a deep breath. Folks, we are far from out of the woods. There has been no resolution to trade talks. In fact the quality of information on the progress of those talks is questionable at best. Additionally, though the President said that he would not fire Powell, we cannot expect him to simply stop applying pressure to the Chair, whose disciples, like him, have been very public about what we can expect from this upcoming FOMC meeting. Economic numbers continue to be benign, suggesting either 1) companies and consumers are not affected, or 2) the effects of the uncertainty and existing tariffs have yet to make it into the ‘hard’ economic numbers, though consumer and corporate sentiment have shown clear signs of distress. I’ll let you pick which one you like. Go ahead.
Look, sentiment can certainly change before it flows into and impacts the hard numbers, but it will not happen overnight, and there will not be a single gating factor. Companies continue to warn of headwinds, and some have removed full-year guidance. Even with the recent uptick in information, corporate managers will only make changes when tangible facts come forward, and right now, most corporate managers are in wait-and-see mode for any big spending plans. So, when will those tangible plans be forthcoming?
Let me start with this. The first trade war with China began in July of 2018 and it was not until December of 2019 that news of a deal resolution was announced (Phase I). Do you remember the markets during that period? No? I will remind you.
The S&P 500 was relatively unchanged through the following summer. BUT not before a -20% drawdown in December, which only ended at the hands… er, words of the Fed. The ‘hands’ came in August of 2019 with the first “mid-cycle adjustment’ rate cut. That and the two that followed would cause stocks to rally by some 10% through the close of the year. That was a trip that lasted 377 trading days. In his current term, the President signed his first tariff executive order on February 1st. There have been 95 trading days since the first shots were fired. The S&P has lost some -10% since, including the past 2 days of rallies.
What is my point here? We should certainly celebrate the reality that the President is seeking to resolve this trade spat. How long will it last? Who is next, bearing in mind that the rest of the world is still being tariffed–when will those negotiations happen, if ever? If we use the last trade war with China as a benchmark, it is reasonable to assume that we are merely 25% through the resolution process. Folks, the race is still in the early stages, so try not to waste all your energy up with knee-jerk moves. There is plenty of good news that is likely to hit the tape in coming months, namely, a new tax package, hopefully a relaxing of bureaucratic regulation, and some Fed rate cuts. All will be reason to celebrate for stocks, however, there will be setbacks along the way. Be patient but act with purpose. Focus is critical. And long-term view? Well, that goes without saying. 😉 Most important, chew your food slowly, so that you don’t choke.
YESTERDAY’S MARKETS
Stocks banged out another solid gain yesterday as traders piled into a so-called ‘Trump Put,’ with the administration showing clear signs of its willingness to negotiate with trade partners. New Home Sales topped estimates, likely driven by the nearly ¾ point mortgage rate decline at the start of the year; we won’t get April data–which may reflect the recent rate uptick–until next month. 🧐
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