Tariff Tantrum
Last week we began with news regarding China’s AI startup DeepSeek. This week we open with tariff news. While the headlines may be different, the results are the same, lower stock prices.?
While I won’t make a habit of overwhelming your inbox with minute-by-minute updates, I do believe it important to address these headlines to give you some ideas of how we’re thinking about them with regards to market volatility and our portfolio allocation.?
Valuation & Confidence – Regardless of the catalyst sparking a market pullback, it has been our opinion for the last few months now that stocks had gotten a bit ahead of themselves not to mention the change in the general attitude of market participants. We’ve written about this sentiment change a few times and while anecdotal, it has once again served us well to simply observe the general risk tolerance of folks we talk with day in and day out. It was only a year ago that our discussions entering 2024 were faced with such negativity, it gave us even more confidence in our bullish thesis. Now however, we’re hearing from folks who are asking for more risk rather than arguing against it. Oh, how times have changed.?
While we remain long-term bullish, markets rarely go straight up, and it is throughout the general ebbs and flows of market volatility where stocks may become attractive. I feel strongly that we’ve crafted our portfolio allocation in a prudent manner, raising capital over the last several months with an eye on buying at more attractive prices.?
Art of the Deal – While President Trump has telegraphed these moves for some time, in my opinion these are often the broad strokes that lead to significant negotiations in very short order. In my opinion, while the disruption in markets due to tariff uncertainty is a short-term inconvenience for US Investors, these tariffs applied towards Canadian and Mexican goods, could at minimum thrust each country into a recession. It did not take long for Economists to relay their opinions as noted in this Bloomberg article.??
While I realize there are a lot of opinions floating around today about these trading partners, it’s important to understand a few statistics.?
In 2023 Canadian GDP was just under $3T while Mexico came in under $2T. The US was close to $28T(1).?
I feel it’s important to understand the vast difference in economies and to keep things in perspective. To put things in context, Microsoft has a current market cap of $3T(2).
In summary, it’s very hard for me to get too bearish here. On the one hand this is a pullback we’ve been anticipating and on the other, these are economic shocks that in our opinion may not last long, nor create lasting damage.?
More important to me is the earnings season, when companies report on how business is doing and their general outlook for the future. The volatility backdrop creates a decent amount of noise, but it will be important for us to focus on the fundamentals and not get too caught up in the short-term emotional outbursts.?
Until next time
~ Quint
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1. https://www.statista.com/statistics/527955/north-america-gross-domestic-product-forecast; https://www.statista.com/statistics/263580/gross-domestic-product-gdp-in-mexico/
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