Everything changed, then changed again. It’s a process and it’s just getting started, and the starting point is tariffs. The goal is more favorable trade terms for the US, more manufacturing and product creation in the US, and more jobs in the US. The White House is using tariffs as the primary catalyst and incentivizer to jump start change, but is also using other more complicated economic considerations. Renegotiate everything with everybody all at once, but start with real money decisions and consequences first to bring our trading partners quickly to heel. It’s an upheaval, and it will not get back to some normal level of uncertainty until there is better visibility and stability in the scale, scope, timing, and persistence of tariffs and trade relationships in the new world. In the meantime, it’s a guessing game as to where things land based on rapidly incoming information with the governor being the idea that that which is unsustainable will not be sustained. The start with the UK and China is an indicator of progress.
The Big Beautiful Bill machine is beginning to warm up its engines. This is the part where the potential for fiscal stimulus and a lowering of the deficit starts to come into play. This will also be difficult and time-consuming, and will have a lot of back and forth.
What is happening vs what might happen in the economy. The data that reflects what has happened shows, in our view, an economy that is chugging along in aggregate reasonably well. Inflation is more or less still on a downward path with expectations still anchored, and employment continues to show some signs of slowing but has not shown signs of accelerating in a bad direction. Economic growth appears to be in the 2% range excluding seemingly one-time import items, and first quarter earnings season turned in nearly six percentage points of growth more than was expected at the beginning of the quarter. So far, the impact of tariffs has been mixed, with the surprise being how well many companies have been able to find ways to mitigate the effects. But many companies have punted on giving guidance on expected revenues and earnings. Others have given two estimates based on status quo and some worse case. Those that do give one set of estimates have tended to qualify with “given current conditions.” What might happen with regard to earnings and economic growth could potentially still involve a bit of downside. What will happen with inflation and employment is also uncertain.
Back to the middle. The markets appear to have interpreted some moderation of the White House positions and the beginning of trade negotiations as taking the dire scenario off the table, but the tariff numbers are still high, and where things settle and when is still anybody’s guess. The S&P 500 and the 10-year yield are back in the ballpark of where they were pre-Liberation Day and the VIX (Chicago Board Options Exchange’s CBOE Volatility Index, a popular measure of the stock market’s expectation of volatility based on S&P 500 index options) is not registering fear. Consumer sentiment is still low; investor sentiment is no longer extreme in either direction, and some technical indicators suggest a bottom may be in. Our view is that we retain a preference for investing with the longer-term fundamentals.
There’s a time for sniffing and a time for walking. Now is a time for sniffing, according to Austin Goolsbee and the gang at the Fed. Better not to walk if you don’t know what’s ahead. Some think that the Fed should be “pre-emptive,” but you can’t pre-empt if you don’t know what to pre-empt. Their message is that inflation could be higher, and unemployment could be higher as a result of various tariff scenarios, but if that were the case, is the right action to hold or lower rates? Their answer is that it is not clear and depends on the scenario. They are clear, however, that their policy tools are monetary in nature (managing money supply and credit conditions), and are generally ineffective for supply side shocks. So, no help here for the time being. Sit, stay.
Globalt’s positioning. We remain conservatively positioned with an underweight in global equities, neutral duration in fixed income, and significant positions in gold and cash.
Sources: CNBC, FactSet, NDR, OPCO, RENMAC, Wall Street Journal
By Thomas Martin, CFA, Senior Portfolio Manager
Disclosure Information
Globalt Investments LLC (“Globalt” or the “Firm”) was founded in 1990. It has been registered with the SEC as an Investment Adviser pursuant to the Investment Advisers Act of 1940 since 1991. Effective October 1, 2023, Globalt is a limited liability company owned by the employees and succeeding the “Globalt Investments” which had been a separately identifiable division of Synovus Trust Co. N.A. (its affiliate since 2002). Globalt is no longer affiliated with Synovus. The SEC declaring Globalt’s successor registration effective should not be mistaken for an endorsement.
This information has been prepared for educational purposes only, as general information and should not be considered a solicitation for the purchase or sale of any security. This does not constitute legal or professional advice and is not tailored to the investment needs of any specific investor. Registration of an investment adviser does not imply any certain level of skill or training. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information may be required to make informed investment decisions, based on your individual investment objectives and suitability specifications. Investors should seek tailored advice and should understand that statements regarding future prospects of the financial market may not be realized, as past performance does not guarantee and/or is not indicative of future results. Content may not be reproduced, distributed, or transmitted in whole or in part by any means without written permission from Globalt. Regarding permission, as well as to receive a copy of Globalt’s Form ADV Part 2 and Part 3, contact Globalt’s Chief Compliance Officer, 3200 Windy Hill Road SE, Suite 1550E, Atlanta GA 30339. You can obtain more information about Globalt Investments and its advisers via the Internet at adviserinfo.sec.gov, sponsored by the U.S. Securities and Exchange Commission. The opinions and some comments contained herein reflect the judgment of the author, as of the date noted.
