Friends

The market was a hot mess today. Responding to the President’s harder than expected line on tariffs, futures tumbled overnight, and stocks plummeted at the open. Market participants might have priced in a more moderate approach to tariffs, but they did not price in the cannon that the President brought to the gun fight last night. Tariff wars, if they indeed develop, would bring recession into the equation. Folks worry about the inflationary effects of tariffs, but I am more concerned with the demand destruction that is likely to occur. The wealth effect is critical to America’s spending habits, and if markets continue to decline consumers feeling less wealthy tend to pull back on spending. We know that the consumer drives the U. S. economy and that the top 10-20% of America’s most wealthy citizens have been the biggest spenders in recent years. Those top 10-20% also are the ones who have investment portfolios that are declining as we speak. This will/could make the Fed’s job very difficult in coming months. If the economy slows, they will be inclined to come to its aid by lowering interest rates. But that could, along with tariffs, stoke the inflation fires. Of course, this is a very fluid situation and could change very quickly, thus for most investors, you have prepared for this and staying calm is essential. Young folks should be taking advantage of days like this and adding to their equity holdings.

As for today it was indeed a mess. By the close the Dow Jones Industrial Average was down 1,679 points to finish the day at 40,545. The S&P 500 was down 274 points to close at 5,396. The Nasdaq Composite Index was down 1,050 points to close at 16,550 (almost 6% on the day). Gold was down $40 to trade at $3,125 per ounce, while oil was down $4.93 to trade at $66.78 per barrel WTI.

We get the non-farm payroll number tomorrow. It will be interesting to see if government layoffs begin to show up this month and if they are offset by hiring in the private sector. Then of course we will be working our way through earnings season over the coming weeks and that is likely to be very difficult for the markets to navigate as CEO’s are sure to be very cautious with their outlooks and earnings guidance. We cautioned that it was going to be a volatile time given the President’s ambitious agenda, and that was never a political statement. Change is hard and comes at a price. Let’s see how the week finishes up tomorrow.

Have a nice evening everyone.

Jim