After falling five percent on each of the trading days following the imposition of broad tariffs by the Trump Administration on Wednesday evening, the apolitical financial markets have spoken and in doing so have issued a verdict on the wisdom of such an economic policy. Now, before pointing to the robust jobs report on Friday (see below) as a repudiation of this assertion, keep in mind that all the data collected for this release was done prior to this event.
Obviously as Americans (not to mention the industry within which we work as well as for the benefit of all our clients) we are rooting for the Trump Administration to do well. In fact, stocks rallied sharply shortly after he was elected and right up until the Inauguration (Jan 20, 2025) on the belief that the tight regulatory environment that existed during the Biden Administration would loosen; tariffs, if applied, would be done sparingly and only after exercising due diligence; and our border would become more secure. Evidence supporting this opinion is the 3.70% and 6.46% increases in the S&P 500 and NASDAQ Composite through these dates.
Post-Inauguration, the financial markets have issued a different verdict as other than securing our border, there leaves a lot to be desired. In fact, the S&P 500 and NASDAQ Composite have fallen 15.38% and 20.59% respectively.
As we are writing this early Sunday morning (Apr 6), we expect the markets to open lower tomorrow unless President Trump releases something that sounds conciliatory in nature. However, if he continues on this path, we do expect at some point in time over the next one to two months for both houses of Congress to try to reclaim its ability “to lay and collect Taxes, Duties, Imposts and Excises” as outlined within Article 1, Section 8 of the U.S. Constitution, powers which it ceded to the President in 1934 within the Reciprocal Trade Agreements Act, the Trade Expansion Act of 1962, the Trade Act of 1974 and the International Emergency Powers Act of 1977. Unless one of these events occurs, the financial markets will struggle to maintain these levels.
· Our course of action is to continue contacting our clients regularly (at least twice per week via Snapshot and ChartTalk), updating them on what we believe is occurring within the economic environment and as it pertains to their portfolio.
· Our course of action is to review portfolio holdings again (we rebalanced during the first quarter) to make certain that portfolios adhere to their long-term objectives. To allocate assets otherwise would be unwise and arrogant.
· Our course of action is to be available via phone, Zoom or in person to answer any questions and to provide updates on portfolio positions, performance, etc… upon request
· Our plan of action is to consolidate portfolios into funds/companies that we believe will emerge from this self-inflicted morass, capable of competing on the perhaps, permanently changed global stage.
· Our plan of action is to help our clients look past this environment, toward two- to three-years down the road, when cooler heads have prevailed.
· Bringing targeted manufacturing back to the United States, is a worthy goal as globalization has carved out our middle class, one we have strongly supported on our radio show, in the media and in writing. However, the application of tariffs with such a broad brush is not wise. For example, where labor represents a large component of production (socks) or where a specific climate is necessary (bananas), it is impossible for the U.S. to be competitive. However, where skilled labor is required or where national security is truly an issue, it makes perfect sense and which is why the CHIP and Science Act was passed in 2022.
· The Section Below is Titled “It’s The Economy” (we left out the “stupid”) refers to a comment made nearly forty years ago by Political Advisor James Carville. Carville was referring to the fact that this was the primary concern for the American voter and although we continue to believe this, until the tariff issue is ultimately reconciled one way or the other, economic and corporate data for that matter, will take a back seat.
It’s The Economy…”
· Non-Farm Payrolls (approximately 80% of the U.S. workforce) rose by 228,000 during March, well above the consensus estimate of 130,000. Payroll numbers for the prior two months were revised to 117,000 and 111,000 from 151,000 and 125,000 during February and January, for a net loss of 48,000. Private Sector companies added 209,000 jobs while the Public Sector added 19,000, this includes a 4,000 drop in federal government employment. The Unemployment Rate ticked up to 4.2% during March from 4.1% one month prior. The Unemployment Rate had gotten as low as 3.4% in April 2023. Both the labor force as well as the number of Americans employed edged higher during March. Average Hourly Earnings rose 0.25% or $0.09 to $36.00 during March from $35.91 one month prior and by $1.33 or 3.84% from $34.67 y/y. Average Weekly Earnings rose 0.25% or $3.08 to $1,231.20 during March from $1,228.12 during February. Average Weekly Earnings over the past year have risen by $38.55 or 3.23% from $1,192.65 as Average hours worked held steady at 34.2 but dropped from 34.4 hours one year ago. The manufacturing week ticked up to 41.0 hours in March from 40.9 hours in February and as compared to 40.6 hours y/y. (Source, U.S. Department of Labor)
Upcoming Economic Reports scheduled to be released this week include the following; on Monday, February Consumer Credit; on Thursday, a look at March Retail Inflation as measured by the Consumer Price Index (CPI) along with the Weekly Report of Initial Claims for Unemployment Benefits; and, on Friday, March Wholesale Inflation as measured by the Producer Price Index (PPI) and an initial look at April Consumer Sentiment.
Q1-2024 Earnings Season Is Upon Us. Several companies of note are scheduled to report, to include – Greenbrier (GBX), Dave & Busters (PLAY), Constellation Brands (STZ), Delta Airlines (DAL), CarMax (KMX), BlackRock (BLK), JP Morgan Chase (JPM), Wells Fargo (WFC).
General Disclosure:“This presentation is not an offer or solicitation to buy or sell securities. The information contained in this presentation has been compiled from third party sources and is believed to be reliable, but its accuracy is not guaranteed and should not be relied upon in any way, whatsoever. Fagan portfolio characteristics and holdings are subject to change at any time and are based on a representative portfolio. Holdings and portfolio characteristics of individual client portfolios may differ, sometimes significantly, from those shown. This information does not constitute, and should not be construed as, investment advice or recommendations with respect to the securities listed.
Additional information including management fees and expenses is provided on our Form ADV Part 2. The actual return and value of an account fluctuate and, at any time, the account may be worth more or less than the amount invested. Bond Investments are affected by interest rate changes and the credit-worthiness of the issues held in the portfolio. A rise in interest rates will cause a decrease in the value of fixed income positions. Past performance results are not indicative of future results.”
