The market has had a rough week or two as a couple of earnings reports came in poorly as well as there has been a lot of political blustering. On the earnings side of things, many of the top stocks of the last year were priced for perfection. As an example, Nvidia came in with an earnings report that was merely, “really good.” That sent a shock through the tech stocks that maybe perfection wouldn’t continue. Fortunately, most of our portfolios are not as heavily weighted towards the mega tech stocks as is the broader market since we believe those stocks are overpriced. That being said, they do have a large and committed following among traders so it would not surprise me if they rebounded in the coming months.
On the political side, we encourage you to remember that these are politicians. I can’t recall a single politician that actually implemented everything they said they were going to. There are always negotiations, ridiculous promises, and compromises. After last week’s meeting with Ukraine about a minerals deal, it looked like the deal was off. Now the headlines say they are about to sign an agreement. This morning we implemented some huge tariffs and this afternoon the commerce secretary says we will likely pare those back. This type of negotiating is what President Trump does. He makes a huge, outrageous promise, people freak out about what if that really happens…. and then he compromises. There is no reason to expect his method to change, and the best approach is to see where the dust actually settles.
In a very strange twist, if President Trump’s policies do hurt the economy and slow down economic growth, that’s actually likely to be good for stocks. Remember the majority of our outlook for this year and next is currently based on what the Federal Reserve does with interest rates. The economy has been and continues to be too strong, so the Fed had raised interest rates to try to slow it down. They have done a few cuts, but the economy is still too strong and the outlook for further cuts keeps getting pared back. If fiscal policies end up slowing the economy further, then there is actually more room for the Fed to lower interest rates which we expect to help the stock market.
The market did react poorly to the implementation of the tariffs so far, and if the tariffs persist and the market continues to fall, we will purchase more stocks. We don’t believe the tariffs constitute a reason for a large decline in the market, so if it does react that way, we will be looking to pick up cheap stocks. We still expect Fed policy to be the biggest driver of the stock market this year.
As always, we understand that this is terrible for those who are directly impacted by the layoffs and the other impacts of policy decisions, and if you have any specific questions or concerns, we are happy to address those with you individually.
