Summary:

In this episode, Will and Adam examine the market uncertainty ahead of “Liberation Day,” exploring the impact of tariffs, inflation expectations, and upcoming government debt refinancing on rates and confidence. They review a tough quarter for stocks, with the Magnificent Seven in a bear market and the S&P 500 down 10% from its highs. Despite elevated valuations and earnings expectations, value and non-U.S. stocks have held up, highlighting the benefits of diversification amid near-term economic and policy headwinds.

In This Episode:

In the first half, we discuss the imminent arrival of "Liberation Day", and why uncertainty over tariffs is causing consternation to consumer, business, and investor confidence. We look at the most recent inflation data from the government and examine the widely divergent inflation expectations based on political affiliation. We also tie this to the likelihood of further rate cuts and the necessity to drive rates lower as sizable government debt is due to be refinanced in 2025.

In the second half, we (finally) discuss what has been a challenging quarter for stocks, especially the Magnificent Seven:

  • In the aggregate, the Mag Seven are in a bear market (down 20%).
  • The S&P 500 is down 5% YTD and 10% below its all-time high, led lower by the Mag Seven.
  • The average stock in the NASDAQ is 35% below its high.

The path forward for the market depends on the impact of tariffs and spending cuts, both of which are likely headwinds in the near term. With both valuations and earnings expectations still elevated, there remains downside in the event of either an economic or earnings recession. However, value stocks have performed well year-to-date, as have non-U.S. stocks, which are garnering attention as a result of changing U.S. trade and foreign policy. In other words, diversification has (finally) been helping.

Disclaimer:

The proceeding content is informational only and based on information available when created. It is not an offer or a solicitation nor is it tax or legal advice. It does not consider your financial circumstances and objectives and may not be suitable for you.

Tea & Crumpets is also available on Apple Podcasts and Spotify.