In the first half, we discuss the showdown between the U.S. and China on tariffs. While the headlines have been stolen by who is calling whom first, we look into the effect the tariffs are already having on container ship volumes, and what implications that has for the rest of the supply chain, and the economy. Tariffs are just starting to hit consumers as they look to buy online, with the tariff exceeding the purchase price in some cases. While there is optimism over a resolution, historically trade agreements have involved lengthy negotiations, and we are weeks away from the initial impact of being felt, making this akin to a slow moving shipwreck. We also discuss the impact of student loan payments turning back on after years of forbearance.

In the second half, we discuss the rebound in U.S. equities, which are anticipating a quick and painless resolution to the trade war, along with three or four cuts by the Federal Reserve during the rest of this year. In our opinion, that number of cuts would only occur if we saw the onset of a recession, which has significant market implications.

• Since World War II, the average recession sees gross domestic product (GDP) decline 2.3%.
• The average earnings decline for the S&P 500 is 11% during a recession
• However, around 1/3 of the time, earnings decline 5% or less.

Many market strategists are celebrating the recent equity rebound, which has been broad based and triggered a number of positive market breadth signals. While these are normally positive portents, valuation is not part of the calculation, and any disappointment in terms of the current earnings estimates leaves little room for error, making us mindful of seeking opportunities outside of the index, which continues to be dominated by a handful of stocks.

Learn more about Formidable Asset Management, Will Brown, and Adam Eagleston by visiting www.formidableam.com.

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.

Learn more about Formidable Asset Management, Will Brown, and Adam Eagleston by visiting www.formidableam.com.

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.

Learn more about Formidable Asset Management, Will Brown, and Adam Eagleston by visiting www.formidableam.com.