Summary:

In this episode, Will and Adam break down the market turmoil surrounding “Liberation Day,” when sharp swings in stocks and bonds prompted the administration to pause most tariffs for 90 days. They examine who actually holds U.S. debt, the dramatic equity rebound that followed, and why high valuations temper optimism despite historic single-day gains. The hosts also explore early earnings signals from major banks, the frequent use of “uncertainty” in corporate commentary, and how trade and manufacturing policies may unintentionally harm America’s service surpluses and tourism sector.

In This Episode:

In the first half, we discuss Liberation Day, the violent reaction of, initially, the stock market and, subsequently, the bond market. In terms of the bond market, we look at the frantic trading from last week that ultimately forced the administration to announce a 90-day pause on most tariffs. Who holds U.S. debt? The answer might surprise you:

  • Total debt - $34 trillion
  • Domestic holders - $26 trillion
  • Japan - $1.1 trillion
  • China - $820 billion (though may be understated as offshore entities, i.e., other countries, are likely being used as well)
  • Other countries - $5.3 trillion

In the second half, we discuss the volatile reaction of equities to headlines.

  • Post-Liberation Day, over a 10% decline in two days.
  • The third largest daily gain ever for the S&P 500 on April 9th (when the 90-day pause was announced).

While many pundits cite such a large up day as being a portent of further gains, which is true historically, we put it in context of valuation, and the 20.7x P/E the market currently has is well above the 12.7x multiple the market had on average after other large gains. Similarly, we look at expectations for earnings, what we have heard so far (JP Morgan noted deteriorating credit trends while Wells cited resilient spending), and what we think we might hear from companies as earnings season gets into full swing (hint: prepare for the word "uncertainty" to be a common refrain). Finally, we discuss the administration's stated objectives of bringing back manufacturing and reducing trade deficits. What is not often mentioned is that this approach overlooks service surpluses, and is causing a sharp decline in foreign tourism, which may jeopardize these surpluses.

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.