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Investment Analysis Clubs Macro Economic Trends and Risks
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The stock market bubble needed a pin to pop it.

The tariffs are that pin.

https://www.wsj.com/finance/investing/market-upheaval-from-trumps-tariffs-could-be-just-the-beginning-e70303f3?mod=WSJ_home_supertopperbottom_pos_4

Market Upheaval From Trump’s Tariffs Could Be Just the Beginning

Investors who think the return to high tariffs will hammer the economy into recession should expect much bigger falls in stocks and bond yields

By James Mackintosh, The Wall Street Journal, April 3, 2025

Markets were gripped by the recession trade after President Trump’s tariffs on Wednesday threatened a global trade war. Treasury yields, stock futures and the dollar all plunged. But this might just be the beginning: If the tariffs, which are in effect the biggest U.S. tax rise since at least the 1950s, cause the economy to shrink, stocks and yields still have a long way to go down.

As recessions take hold, stocks are hit both by lower earnings and by lower valuations, as spending falls and savers switch to safer assets. Defensive stocks better able to maintain sales—such as sellers of food and other household staples—beat those selling optional purchases such as luxury goods and cars, known as cyclicals…

Yet, while the market is moving fast to price in a higher chance of recession, it is far from fully prepared. The S&P 500 is only down 10% from its all-time high and back to where it stood in September. Usually in recessions, stocks eventually fall at least 20% and give up far more than six months of gains. The S&P is still valued at close to 20 times forecast earnings, too, which would surely be unsustainable in a recession…

Investors who think the return to tariffs higher than the 1930 Smoot-Hawley rates will hammer the economy into recession should expect much bigger falls in stocks and bond yields as the year goes on. … [end quote]

The combination of higher tariffs and deporting immigrants will increase inflation from two different directions. The Federal Reserve won’t cut interest rates if inflation increases. As usual, the market doesn’t believe it and is front-running the Fed. This optimism has led to several market drops before when the Fed sticks to its guns. If inflation rises out of control Powell may imitate the great Paul Volcker and raise rates even during a severe recession.

https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html

The likeliest outcome is stagflation.

The other risky asset, junk bonds, are already falling and have a long way to go. Spreads are already widening.

This is the most risk-averse panel I’ve seen in a long time. But it still has a long way to drop.

There’s a lot of turmoil to come.
Wendy

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2

Lucky for me I know it’s impossible to time the market. Everyone agrees: it’s impossible to time the market. Only a fool would try to time the market, right?

That’s why I haven’t tried to time the market and have remained fully invested, because an overheated market coupled with inept management of the economy couldn’t possible lead to a bad outcome, right?

I hope all the people who assured me you can’t time the market will rush in to agree with me, even as they watch their portfolios descend into a miasma of red, or perhaps I should say “reddish-orange.”

Curious, mine isn’t doing that.

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I started being less aggressive about a year ago but was still nearly all equity, just careful about which names I was in. And much of this year has been with a cash/bond allocation in the 30’s (today at 38%) which puts me into balanced-fund territory. Let me tell you, right now, I am beating the S&P 500 by 7%. Two years ago a Fidelity agent told me on a retirement planning session that “you have little downside protection”. I eventually took that to heart and glad I did.

This could be a rare moment in time where timing the market makes sense. Question, what would hurt worse? Staying the course and suffering a decent loss, or adjusting and missing an identical-sized gain?

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All I can hope for at the moment is that all the useless, spineless ones, un-named, see what they’ve let happen and pay dearly… I wasn’t around in '29, obviously, family was too busy in survival mode to even consider investments back then. I’m amazed at the ignorance on full display…

Best of luck to our Fools…Hang on!

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As noted before, tariffs did not go from zero to Smoot. Tariffs were high all through the “roaring twenties”. Tariffs were so high Rolls Royce stooped to opening a plant in the US, to duck the tariffs.

One of the shows I attend each year has a model year cutoff of 1932. I see a handful of Rollers, and, curiously, a couple pre WWI Renaults. The overwhelming majority of the cars are US built, by US companies. Imports were not a thing.

Steve

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Same venue, different show, covering the post-war years. Even in this short clip, you see an Austin-Healey Sprite and an MGA. Imports have been a post-war phenomenon.

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We’re getting it faster as well as harder.

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Indeed.

The Smoot-Hawley Tariff Act raised the United States’s already high tariff rates. In 1922 Congress had enacted the Fordney-McCumber Act, which was among the most punitive protectionist tariffs passed in the country’s history, raising the average import tax to some 40 percent.

DB2

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9

I just checked my portfolio. I’m 6% down from my November all-time high.

How is that possible?

It seems that drugs and BRK are immune from the tariff madness.

Like I’ve said. I learned my lesson in October 1987 when the DOW dropped 22.6% in one day. Stayed out of the market for the next 2 years. I’m at least 25% poorer today as a result.

I’ll let others pay the skim of fees, commissions, trading costs and taxes. It’s always interesting to watch the sellers.

intercst

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Yep. There won’t be any change until they feel it hard enough to realize it ain’t Obama.

intercst

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As noted before, it isn’t the stated objective, it is the precipitate way it is being done. TIG wants his tax cut, and wants it NOW. The rest is collateral damage.

Steve

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No tax cuts for billionaires until everyone gets their $5,000 DOGE dividend check. {{ LOL }}

intercst

13

Mea Culpa alert on this one…gold has sympathy pains today. I do not know what that means for tomorrow. During the last Great Depression what was going on early in the process was not clear.

Dear Wendy, Goofy, BJ, et al,

The swing trade is in substantial gold miners. The hold some months as the dollar descends with the tax cut.

That is not a believe in gold and hold until relieved.

But your USD is about to take a major haircut. That is a tread water if you can call.

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Now increased to $50,000.

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Note I was or am talking Gold miners.

AI Overview

Learn more

In 2022, the price of gold in the UK, measured in British pounds, rose by approximately 13% to £1,507 per ounce, starting at £1358.06 on January 1st and peaking at £1584.41 on September 26th.

Here’s a more detailed breakdown:

  • Initial Price: Gold started the year at £1358.06 per troy ounce on January 1st.
  • Year-End Price: The price ended the year at £1514.53 per troy ounce on December 31st.
  • Peak Price: Gold prices reached a peak of £1584.41 per troy ounce on September 26th.
  • Dollar terms: Gold depreciated by 0.3 percent in dollar terms to end the year at $1,822 per ounce
  • Euro terms: In euro terms, however, the price of gold rose by 7 per cent to €1,699 per ounce
16

I wonder how many times the Ben Stein Smoot-Hawley segment from Ferris Bueller’s Day Off has been watched today.

Anyone?
Anyone?

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Wait… Navarro was on Bubblevision just now, claiming the wonderful ‚Trump bull market’ would start imminently.

He also droned on about ‚national emergency‘ and how everyone else were defrauding the US, including with the VAT system. When the presenter timidly asked him to explain that, nothing coherent came as response.

She then asked whether the tariffs could be negotiated he said it were mostly about non-tariff obstacles, complaining about the Japanese car market….

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I watched that. It was nonsensical.

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I am not totally against everything Navarro says. Where do you think China is getting the money to simultaneously fund it’s “soft power” initiatives, as well as it’s military buildup? From we folks who buy Chinese stuff.

But he does need to follow the administration narrative about how we are “victims”. rather than try to explain, to dramatically under-educated people, why they can’t have the cheapest stuff in the world.

Steve

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