It’s easy to get caught up in the noise surrounding tariffs, especially as they dominate headlines. But markets are forward-looking, often pricing in potential outcomes long before they materialize. Historically, markets also have had a tendency to overreact—both on the way up and down. Consider the rise and fading buzz of the AI theme. This is why, when sentiment leans too far in one direction, thoughtful investors should explore the non-consensus view. When pessimism is widespread and markets hover near lows, we ask: what could go right?
President Trump campaigned on three major initiatives: tariffs, tax cuts, and deregulation. Most expected the latter two to come first. However, the administration has repeatedly emphasized reducing both debt and trade deficits. In that context, it’s logical that tariff revenues could help fund tax cuts without inflating government spending. After Trump’s election, markets rallied in anticipation of business-friendly policies like tax reform and deregulation, which were expected to fuel growth and M&A activity. But as tariff tensions took center stage, that narrative faded. We believe there’s potential for another shift—once trade negotiations settle, attention may return to growth-focused policies.
Still, we’re not there yet. The biggest weight on markets today is uncertainty. We think investors prefer being able to evaluate outcomes, assign probabilities, and allocate accordingly. Businesses operate similarly—they need clarity to forecast and plan. This theme has echoed throughout this earnings season and was captured well by my colleague Keith Buchanan in his recent commentary, “Earnings at a Crossroads: Trade Pressures and Market Expectations Collide.” A resolution on trade would significantly ease this overhang.
Currently, however, our technical indicators suggest we remain in a murky environment. Many stocks are trading below their 200-day moving averages, the VIX has remained elevated for much of the year, and recent rallies have lacked the breadth needed to signal a sustained shift in momentum. Without confirmation, we believe the prudent course is to remain patient and diversified, avoiding excessive risk in either direction.
We are, however, closely watching for signs that all the bad news has been priced into equity markets and that the tide is poised to turn. Markets tend to move quickly on even modestly positive developments when sentiment is deeply bearish. But, until we reach that inflection point, we continue to stay the course—vigilant, nimble, and ready to act when our indicators shift.
By Veronica Fulton, CFA, Associate Portfolio Manager
Originally published May 2, 2025
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