Quick comments on the markets reaction to tariffs

Stocks began the second quarter of 2025 following the worst quarterly performance in nearly three years and facing dual market headwinds of policy uncertainty and potentially slowing economic growth. This morning, global markets are under some duress…but for now the action should not cause you to change your thesis. Economic data points have not collapsed and expectations for Friday’s NFP report and the coming earnings season remain strong.

However, while markets are facing legitimate headwinds, it’s important to realize that stocks are under duress in what feels like a ‘shoot first, ask questions later’ reaction. Fears of what might happen in the economy, not because of what is actually occurring causing the algo’s and trader types to hit the SELL button. Point being, if policy decisions and an economic slowdown aren’t as bad as currently feared, it could cause a substantial market rebound in the coming weeks/months.

Starting with the trade and tariff policy that was announced last night - there needs to be a clear and concise communication strategy from the administration regarding its policy goals of these tariffs and what the responses will be depending on the global response of our trading partners. That is KEY. What is the response - So far, we have seen a number of nations signal their intent to engage - the EU, Canada, the UK, Mexico, India, Israel and Australia have all reached out.

Turning to economic growth, while fears of a slowdown surged in the first quarter, economic data stayed mostly resilient. Jobless claims remained subdued, measures of manufacturing and service activity showed continued expansion and the unemployment rate remained historically low, close to 4.1%. Put simply, there was little in the actual data in Q1 to imply the economy is weakening. If economic data stays solid throughout the second quarter, it will push back on those recession fears and could help fuel a rebound in the markets.

On market valuation, the declines of the first quarter have resulted in the S&P 500 trading at a more reasonable valuation compared to the start of the year, as extremely bullish investor sentiment has been replaced by a decidedly bearish outlook (which has historically set the stage for a market rebound). Bottom line, the market was richly valued at the start of the year and investor sentiment was complacent, but the volatility of the first quarter has removed both of those conditions and that is a general positive for the markets.

Finally, while the S&P suffered moderate declines in the first quarter, there were many parts of the market that weathered the volatility and posted positive returns.

Energy, Healthcare, Utilities, Consumer Staples, Value, Financials are just a few. More than half of the sectors within the S&P 500 logged positive returns in the first quarter while two other sectors only saw slight declines, underscoring that the volatility we witnessed in the first quarter didn’t result in a broad market wipeout and there are sectors and factors that can continue to outperform in this environment.

Today's reaction to the tariff announcement - in my view - is overdone. These were not a surprise at all - no matter what any of the naysayers are saying. The calculations are clear - he originally announced 'reciprocal' tariffs on any nation that tariffs us - in fact - that is NOT what we are doing. We are hitting back at 50% to try and bring the conversation to the table and we are already seeing results.

On days like this - it is always better to sit back and let it play out. Typically - it is a 3 day waiting period to see where mkts go. Our portfolios are designed to weather the storm and should not be re-modeled based on one day's reaction. Now, that being said - good quality stocks that are being sold in order to raise cash -causes them to become mispriced creating a longer term opportunity.

At times like this- I am looking at the best names in the different sectors. So, PG, JNJ. MSFT, AAP, MRK, KO, VZ, GE VERNOVA, XOM, SLB, COST, WMT - are just examples of where to look - there are lots of others….

In the end - any of the high quality names that you own in your long term acct that get dislocated/mispriced are opportunities.... UNLESS their investment thesis has changed.

but again - today, I am sitting back to watch the reaction - The S&P will be KEY... 5488 is the level to watch.....this morning it looks like it will test that - the question is will it hold?