Daily Commentary

“Keep your head when all about you are losing theirs.” Those words, from Rudyard Kipling’s famous poem “If” seem apt now, in light of Thursday’s steep, nearly -5% selloff.[i] Volatility is unsettling, awful in the moment. But taking a deep breath, assessing the situation carefully and looking for what others miss is the wisest approach, in our view. So look with us at the Trump administration’s tariffs, markets’ reaction to them and the potential paths forward. Several weeks ago, President Donald Trump signaled he would soon announce “reciprocal” tariffs to sync US tariffs with the costs he and his aides say trade partners impose on US goods—their tariffs, plus the costs of alleged currency manipulation and non-tariff trade barriers. Wednesday afternoon, we finally got the actual numbers. Beginning April 5, the administration will impose a blanket 10% tariff rate, with higher rates on the EU (20%), China (34%) and several others. This excludes new tariffs on Mexico and Canada, steel, aluminum and autos. The administration has also confirmed they will exclude copper, pharmaceuticals, lumber, energy and other minerals the US doesn’t produce, as well as Taiwanese semiconductors and a few other things. However, aside from these carveouts, Treasury Secretary Scott Bessent confirmed they will be added to pre-existing tariffs. So, for example, the new rate on Chinese goods will be 54%. That is the 34% announced Wednesday, plus two earlier 10% rounds. Overall, this is bigger than expected. By our math, they would bring the US’s effective tariff rate to 25.5% and raise the maximum new annual tariff payment to $760 billion, which is 2.6% of US GDP and 0.7% of global GDP.[ii] Now, this doesn’t mean American consumers and businesses will actually be paying that much. In 2018 and 2019, actual tariff revenue was only about 25% of the estimated maximum potential payment.[iii] Businesses were able ...

With Q1 in the bag, purchasing managers’ indexes (PMIs)—timely indicators estimating the breadth of businesses’ expansion (but not their magnitude)—show the global economy mostly continued chugging along in March, ahead of early April’s major US tariff announcement. Furthermore, firms’ order books indicate more growth going forward, suggesting the global economy entered Q2 in better shape than widely perceived. We consider this as part of the backdrop in assessing evolving economic conditions now. Exhibit 1 shows S&P Global’s composite PMIs—surveys combining services and manufacturing—are broadly positive, with readings above 50 meaning a majority see growth. Generally, this implies the PMI signaled expansion. Exhibit 1: Global Growth (Mostly) in the Green Source: FactSet, as of 4/4/2025. Now, there are pockets of weakness. Japan’s composite PMI contracted last month, while France’s has been below 50 almost continuously since June 2023 (the Paris Olympics boosted activity briefly last summer). But dips below 50, while contractionary in PMI terms, don’t necessarily translate to actual, broad economic decline. As we hinted upfront, PMIs reflect how many firms see their business expanding or contracting—but not how much each business grew or declined. A minority of firms experiencing growth can outweigh a majority that aren’t. Especially if PMI readings are only somewhat below 50, making it fuzzier than that dividing line (and our green and red shading) suggests. For example, Japan’s GDP grew despite negative PMI readings last year, and so did France’s (though its Q4 contracted slightly). The divide between services and manufacturing PMIs seems starker, with the latter seeing more widespread contraction. But this isn’t new or auto-recessionary: Services far outweigh manufacturing, particularly in the developed world. The world economy is around 62% services, ...

Editors’ Note: MarketMinder prefers no politician nor any party. We assess developments for their potential economic and market effects only. Like an old friend coming for a visit or a movie sequel, debt ceiling theatrics are set to resume this summer. Estimates claim that somewhere between July and October, the US will exhaust its ability to meet all “obligations” without breaching the limit, reigniting fears over Congress whiffing on a deal and the possibility of default. Yet there remains no evidence—zip, zero, nada—debt ceiling theatrics are bearish or that failure to get a deal means the US defaults. Let us explain. First, some background. America’s debt ceiling is the statutory limit on the amount of US federal debt the country can have (more info on it here). But it is purely symbolic—it doesn’t actually limit debt. Congress regularly raises or suspends it temporarily to keep Treasury bond issuance humming. Most recently, Congress suspended it via the “Fiscal Responsibility Act” of 2023. The suspension expired in January, reinstating the limit at the current amount of debt. Since then, the US Treasury has been using so-called “extraordinary measures,” (like curtailing issuance of a special series of intragovernment bonds used effectively as accounting measures) to generate cash and continue meeting the government’s spending obligations. This inevitably creates a frenzy to determine America’s “X” date, the day the “extraordinary” measures run out and the government becomes unable to meet all its “obligations” in full and on time. New analysis from the Bipartisan Policy Center (BPC)—a Washington-based think tank—forecasts the X date will land between mid-July and early October.[i] The Congressional Budget Office (CBO) amplified worries days later, guessing it will fall some time in August or September.[ii] So like ...

US stocks ended last week on a rough note, with the S&P 500 falling -2.0% and nearing its year-to-date low, notched on March 13.[i] Headlines universally pinned it on two developments: the Trump administration’s forthcoming 25% tariff on auto imports and the University of Michigan’s consumer sentiment gauge, which tanked in March. We have discussed tariffs a lot, and the auto levies—while not positive, in our opinion—don’t much change the calculus. They still seem too tiny to render recession. As for consumer sentiment, let us dig in a little deeper and explain why this looks like a false fear; an illustration of classic market correction behavior. Whenever volatility strikes, investors’ biggest challenge—in addition to staying disciplined—is to determine whether it is likely a correction or bear market. Corrections are short and sharp, about -10% to -20%. They are normal in bull markets but painful to endure. They also start and end without warning because they are sentiment-driven, making them impossible to time. Bear markets are deeper and longer, falling -20% or worse. They usually start more gradually, with the worst declines striking late. They also typically have fundamental causes. This makes their start and endpoints less fickle than corrections’. One of the biggest risks an investor takes, in our view, is selling after the market has fallen. This runs the risk of mistaking a correction for a bear market and missing the rebound that follows—and all the returns that would compound on those initial gains over time. It can be a severe setback. So at times like this, we think it is crucial to take a deep breath, observe carefully and think critically. One thing to look out for: Evidence that negative sentiment is overdone relative to actual economic conditions. That means not just looking at sentiment surveys like U-Michigan’s, but also at the narrative surrounding them. March’s ...

Spring has sprung! And so has March’s mailbag. Off we go. Setting aside the current market turbulence, how do we separate noise from facts when thinking about political developments and markets? Intentionally and carefully. And this doesn’t just apply to politics—it applies to how we approach all news, the fruits of which you can see in our articles and the “What We’re Reading” section. The first step is understanding how modern journalism works and what the business model is, which we say without passing judgment. Journalism has largely moved away from ad-based to subscription-based. This creates the incentive to play to the subscriber base to keep those dollars flowing, which generally results in coverage that is more biased, with more opinion bleeding into news articles. The old days where you had the opinion page and the news desk and a hard firewall between the two are gone (and probably never quite existed as modern society tends to envision nostalgically). Now, opinion regularly bleeds into reporting. Sometimes it comes as context, sometimes as quotes from chosen experts, sometimes people call it “news analysis.” The analysis always has a bias from training, experience and education. It is opinion-based. So when we read coverage, we go slowly and carefully to sift opinion from fact. It is difficult to do, because most statements of opinion don’t come with the necessary qualifiers. Opinions often get stated as fact. So we are on the lookout for theories, hypotheses and viewpoints that are stated in declarative sentences. We put those in one bucket. Then in the other, we put the actual statements of fact. And then, as much as possible, we go to the primary source material, be it the economic data release, legislation, Executive Order, research report or whatever else the article is covering. We square the facts presented in the article with the facts presented in the source material. We check for ...

Editors’ Note: MarketMinder prefers no politician nor any party. We assess developments for their potential economic and market effects only. Non-US politics’ busy 2025 continued this week, with new developments in Canada, South Korea and Australia. While none are make-or-break for stocks, in our view, all highlight (to varying degrees) the falling uncertainty we think is likely to help markets this year. Carney Calendars Canada’s Election New Canadian Prime Minister Mark Carney called a snap election Sunday, taking another step toward easing the uncertainty that has hung over Canadian markets in recent months. The move will send Canadians to the polls on April 28, where they will elect a new parliament—including a new Prime Minister. This ends the question over when the next election, due by October, would occur. When his predecessor, Justin Trudeau, was floundering in the polls, analysts speculated his successor would wait in hopes of rebuilding the Liberal Party’s support. But then Carney’s ascent sparked a polling surge that put him and the Liberal party ahead of the opposition Conservative party and its leader, Pierre Poilievre.[i] This heightened expectations for Carney to strike while the iron is hot, and that is now happening. The Liberal’s lead over the Conservatives has some saying Carney is sure to win an outright majority, improving on Trudeau’s minority government. But elections aren’t cakewalks, and early polls aren’t all telling. They offer a baseline read on where voters broadly stand at the start, but they can’t predict how either campaign will evolve. National polls are also of less use in Canada, where voters elect representatives by constituency (or “riding,” as they are known north of the border). Little separates Carney and Poilievre on the policy front, as both have pledged income tax cuts (Poilievre’s slightly larger) and hefty public investment in ...

Is dreaded stagflation lurking? Some think so after the Fed’s latest “dot plot” economic projections showed downward revisions to GDP growth and upward revisions to inflation—due in part to potential tariff fallout. Fed chair Jerome Powell noted at his post-meeting press conference that any tariff-related inflation would be “transitory,” seemingly forgetting he was in favor of retiring that particular word, but some skeptical pundits worry prices will dig in as the economy fizzles. We disagree. A comparison between the posterchild for stagflation in the 1970s—which many misremember—and the present suggests today’s fears are misplaced, in our view. Stagflation refers to the nasty combination of a flat or shrinking economy accompanied by rising prices and unemployment. The 1970s are a frequently cited example and, arguably, the only spell in modern history that comes close. However, while that period conjures up memories of economic stagnation, rising prices—especially for gasoline—and political tumult (e.g., Watergate), the data indicate a more complex reality. The inflation aspect was indeed bad. Despite some easing early in the 1970s’ second half, the inflation rate’s low that half-decade was still over 5% y/y, which isn’t exactly slow. (Exhibit 1) Exhibit 1: US CPI, 1965 – 1985   Source: FactSet, as of 3/25/2025. US CPI, year-over-year change, January 1965 – December 1985. But the “stag” part has always been a bit overstated, in our view. Yes, the US was in recession for most of 1970 and from late 1973 – early 1975.[i] During those stretches, real (i.e., inflation-adjusted) GDP contracted -0.7% and -3.1%, respectively.[ii] Yet US GDP expanded during the rest of the decade—and some years featured strong annual GDP growth. (Exhibit 2) Over the entire 1970s, inflation-adjusted GDP grew 37%.[iii] Exhibit 2: The Not-So-Stagnant ...

Editors’ Note: MarketMinder prefers no politician nor any party. We assess developments for their potential economic and market effects only. Spring is here, which apparently can mean only one thing: It is time for another round of UK fiscal policy changes! Yes, before all the changes in October’s Budget have even taken effect, Chancellor of the Exchequer Rachel Reeves delivered the “Spring Statement” Wednesday, which is basically a supplemental budget paired with the Office for Budget Responsibility’s (OBR’s) latest economic forecasts. These packages rarely move the needle, and we think this one is no different, but they provide a good look at investor sentiment. For good or ill, semiregular fiscal policy tweaks rarely change much. They generate big headlines, but they usually amount to tinkering with taxes and spending at the margins. A few billion here and there seems big to normal people, but UK GDP tops £2.8 trillion annually.[i] Relative to the UK economy, the changes usually amount to peanuts. So when headlines magnify their importance, it gives us a decent read of how detached sentiment is from reality. Judging from the reactions Wednesday, it is pretty detached and overall too dour. The OBR halved its 2025 GDP growth forecast to just 1.0%.[ii] It also increased its forecasts for the ensuing years through 2029, but headlines dwelled on the 2025 downgrade, arguing Britain’s prospects are dismal. Most warned Reeves’ proposed investment increases won’t be enough to get the economy humming and her planned spending cuts won’t create enough deficit wiggle room, almost surely teeing up massive tax hikes later this year as the deficit balloons and the economy stagnates. Others zeroed in on the planned welfare spending cuts, arguing they will exacerbate the cost-of-living crisis. Across the political spectrum, headlines near-universally dismissed Reeves’ claims that these proposals will ...

When market volatility strikes, there are a few things you can usually expect to see. Fearful headlines. An overarching scary story. And articles highlighting investment vehicles purporting to help cushion the blow. This time, we are seeing the latter surrounding so-called “buffer” ETFs, which claim to provide investors upside without (much) downside. As Fisher Investments founder and Executive Chairman Ken Fisher says, though, “investment strategies promising both growth and capital preservation are phony baloney.” Buffer or defined outcome ETFs use option strategies with the aim of limiting downside to varying degrees. So, for example, a 9% buffer ETF we reviewed based on the S&P 500 offers to cut paper losses by that amount. E.g., if the S&P 500 dropped -9%, an investor would lose nothing (not including fees). Past the threshold, say if the S&P 500 fell -15%, then the buffer ETF would lose -6%. But there is no free lunch, and you must always pay the piper: Buffer ETFs also cap upside, which may differ from the amount of downside protection. The same 9% buffer ETF has a 15.85% cap, so if the S&P 500 rose 10%, an investor would participate fully. If the S&P 500 appreciated 20%, though, the investor would still gain only 15.85%. The reason they cap upside: Buying downside protection is often expensive, so to help offset this cost, the fund sells a call option—in this case, the right to buy the S&P 500 at a price 15.85% higher than at the contract’s start date. Note the practical effect this has: an asymmetrical risk-return structure that doesn’t favor investors. While buffer ETFs offer downside protection, it is limited. In our example above, after the initial -9% “buffer,” an investor would still participate in all losses exceeding it. Whereas buffer ETFs’ losses are potentially unlimited, the hard cap on gains means an investor would miss out on all upside beyond it. There is a ...

How is the US economy really doing? This question continues preoccupying headlines and investors, with the implication being that the answer will tell us whether US stocks’ downturn is a blip or something worse—a sentiment-fueled correction of -10% to -20% or a deeper, longer bear market of -20% or worse as stocks price in real problems. But as often happens when volatility spikes, people are looking for the answer in some unusual places, scrutinizing everything from jewelry sales to college students’ spring break vacation choices. The creativity is amusing, but we don’t think it will give you clues about where stocks—always forward-looking—go from here. Unconventional and real-time economic indicators have their moments of usefulness. In 2020, for example, they helped investors assess and scale the economic effect of COVID lockdowns. While traditional indicators like retail sales and industrial production come at a lag, restaurant bookings, TSA checkpoint crossings and other similar metrics offered quick insight into how much commerce the US economy was losing. Then, when society started reopening after stocks began recovering, real-time metrics helped the world form reasonable, data-driven opinions about whether the market was right to price in such a quick economic rebound. These indicators weren’t predictive, of course. They told you what was happening in the moment, not what would happen. They weren’t seasonally adjusted. And they were too widely watched to give much of an investing edge. But as a pencil sketch showing whether sentiment was out of whack with reality, they were handy. So at an intellectual level, we get why people are looking again outside the mainstream. One Wall Street Journal piece highlighted traders who track restaurant spending, high-end jewelry sales and automobile loan application rates—all supposedly indicators of discretionary demand. Others drill down on the Fed’s regional ...

Whenever a correction strikes markets—one of those sharp, sudden, sentiment-fueled drops of -10% to -20%—there are a few things you can bank on happening. Often there will be a big story. Headlines will probably argue the market is right to be down (which generally won’t happen early in a bear market). And you will find articles looking for hidden clues worse things are in store. We have seen that third one a lot over the past week or so, with a growing belief small-cap stocks’ larger decline implies they know something the larger-cap S&P 500 doesn’t. But a quick tour through market history shows small-cap underperformance during a downturn isn’t a magic indicator. Definitions of small and large cap vary. We have found, over the years, that companies whose market cap is much below the broad market’s weighted-average market cap tend to perform like small cap, while those around or above it tend to best represent large cap. But after long periods of large cap outperformance, that universe tends to be vanishingly small. So for quick-and-dirty analysis of longer-term trends, we are happy to go with the flow and let the Russell 2000 represent small cap and the S&P 500 represent large cap. When we do so, we find small cap’s recent decline is bigger and longer than the S&P 500’s. Where the S&P 500 just barely crossed -10% from its high on February 19, small cap’s high was back in late November.[i] Its largest drawdown, thus far, was a shade over -18%.[ii] Headlines claim this is a bad sign, a canary in the coal mine for big cap. Evidence these stocks are pricing in some broadly unseen recession risk because small caps are more economically sensitive. It is fair enough to note that small companies tend to be more cyclical and rely more on bank lending, so they are more vulnerable to the economy’s ups and downs. Many lack the economies of scale, robust balance sheets and qualitative features ...

Some conversations just stick with you. Like this one, nearly a year and a half ago, on one of those sunny, warm November afternoons Northern California gives us now and then. I was having coffee with a dear friend who asked, as people often do, if I ever saw myself switching career paths and opening a bakery. Nah, I said, much as I like the thought of being the gal with the pie shop, I have no desire to run the business, manage inventory or make cakes and pies at scale. If I turned my hobby into my job, I surmised, I’d probably have to start analyzing the stock market for fun. He laughed, and I think I was joking. But this week, while working on a project, I realized I wasn’t joking. And it gets at the heart of why investing is so darned hard for many people. Ken Fisher, the illustrious founder, Executive Chairman and Co-CIO of Fisher Investments, has long observed that people tend to treat investing like a craft. A trade. Like cobblery, woodworking, a sport, even engineering. Something they can practice over and over again, always improving and gaining mastery because what works always works. The vast majority of financial curriculum takes this approach. Newcomers are taught the same methods, tools and tactics as those preceding them … and those before them. And so on. But there is a philosophical flaw with all of this: The market evolves as it prices in widely known information. Tactics work for a spell, then lose their edge as everyone uses them. Events that were negative for stocks in one environment become benign in others. And when everyone is convinced it is now benign, it has negative power once again. Therefore, investing is more science than craft. Not the unquestioning kind of science some people seem to blindly “trust,” but the actual scientific method in a constant search for new wisdom and knowledge, new understanding about how and why markets have done X and what, therefore, is likely to happen from here. That ...

Weeks of tariff talks, trade tensions and other worries have had pundits on edge about China’s economy. Yet Beijing’s latest economic data release—covering the combined January – February period—showed an economy continuing to move past an early-2024 soft patch. While some found nuggets they claimed illustrated persistent worries, overall, we think these data point to a healthier-than-feared Chinese economy that should continue contributing to global economic growth. Early-year China data are always a bit tricky because the Lunar New Year is a week-long holiday that shifts between January and February. Sometimes in one, sometimes the other, sometimes straddling them. In addition to skewing month-over-month readings, this can also skew year-over-year readings if the holiday is in January one year and February the next. So, to account for this, China’s national statistics agency combines January and February data into one reading, which it frequently compares with the same two months a year ago. It is an elegant solution and unique to China, which doesn’t have a robust or mature set of seasonally adjusted data, and it helps investors see through holiday distortions. CPI Stumbled, Spurring Deflation Worries Inflation data are a prime example, as big monthly swings netted out to China’s headline consumer price index (CPI) falling just -0.1% y/y in the January – February period.[i] While this largely extends a yearlong trend of flattish prices, it was also the first negative reading in some time, leading some to argue the long-feared Chinese deflation is at hand. But prices weren’t down across the board, as seen in core CPI’s (excluding food and energy prices) 0.3% y/y rise over the same stretch. Food prices were the main culprit, as prices for fresh vegetables, grain and fruits fell -5.5% y/y, -1.4% and -0.6%, respectively—though pork prices rose 8.8% off 2024’s low base. Outside of this, ...

Amid all the recent tariff and political chatter, some economic data have flown under the radar. Here is a quick review of the latest figures from across the pond and what we think the investment implications are. UK GDP’s Ongoing Chop After ending 2024 positively, UK GDP slipped -0.1% m/m in January, breaking a two-month growth streak.[i] Some headlines (and politicians) pinned the contraction on President Donald Trump’s steel and aluminum tariff threats. But that seems like odd reasoning to us. These data are for January. President Trump didn’t take office until late that month, and steel and aluminum didn’t become specific tariff threats until February. Yes, the White House shared its “America First Trade Policy” memorandum on January 20, but it didn’t issue any official tariff orders until February 1—and Canada, Mexico and China were the targets, not the UK. We saw comments from British steelmakers just today that only now are US businesses starting to cancel orders. Which makes sense to us. Tariff threats are generally an incentive to front-run potential changes by ramping up production and shipments before the levies take effect. For instance, potential US tariffs likely drove China’s late-2024 strong export growth as companies acted before new possible policy. So the UK production sector’s -0.9% m/m contraction in January, with manufacturing output down -1.1%, is the opposite of what we would expect to arise from mere tariff talk.[ii] The largest detractor was basic metals and metal products (-3.3% m/m)—not what we would expect to see if firms were trying to get ahead of possible steel and aluminum tariffs. Digging in, we find this category has had several big drops in recent months, making January’s slide part of the longer-running trend. Seems to us like the industry is, at least in part, dealing with the fallout of gradually shifting steel mills’ blast furnaces to electric arc ...

Editors’ Note: MarketMinder is politically agnostic. We assess developments for their potential economic and market implications only. Is austere Germany about to unleash a fiscal stimulus of epic proportions? Headlines say so, pointing to Chancellor-in-waiting Friedrich Merz’s plans for a constitutional amendment allowing increased defense and security spending—and a €500 billion spending package to match. But this thinking is off-base, in our view—the outlook for German stocks and its economy doesn’t hinge on massive public investment, which would likely trickle out too slowly to matter for markets anyway. First, some background: Earlier this month, Merz announced he would push to exempt German defense and security spending over 1% of GDP from the country’s debt brake—a constitutional rule that limits government borrowing—allowing him to move forward with a proposed €500 billion infrastructure fund without running afoul of borrowing limits.[i] With the exemption, the plan could boost German spending by €1 trillion over the next 10 years. Many see this as an avenue for Germany to self-support its defense and infrastructure efforts rather than rely on the United States. The timing here isn’t too shocking, considering the proposal comes amid transatlantic trade tensions and the Trump administration’s seeming back-and-forth stance on Ukraine—and on the heels of February’s German election. In Germany, constitutional amendments require supermajority approval, or agreement from two-thirds of the Bundestag.[ii] The new parliament takes office on March 25, at which time Merz’s Christian Democratic Union (CDU), its Bavarian sister-party the Christian Social Union (CSU) and the Social Democratic Party (SPD) are expected to launch potentially long coalition talks, so Merz and current Chancellor Olaf Scholz are trying to push this plan through now. But neither the current ...