In the first half, we discuss Liberation Day, the violent reaction of, initially, the stock market and, subsequently, the bond market. In terms of the bond market, we look at the frantic trading from last week that ultimately forced the administration to announce a 90-day pause on most tariffs. Who holds U.S. debt? The answer might surprise you:

• Total debt - $34 trillion
• Domestic holders - $26 trillion
• Japan - $1.1 trillion
• China - $820 billion (though may be understated as offshore entities, i.e., other countries, are likely being used as well)
• Other countries - $5.3 trillion

In the second half, we discuss the volatile reaction of equities to headlines.

• Post-Liberation Day, over a 10% decline in two days.
• The third largest daily gain ever for the S&P 500 on April 9th (when the 90-day pause was announced).

While many pundits cite such a large up day as being a portent of further gains, which is true historically, we put it in context of valuation, and the 20.7x P/E the market currently has is well above the 12.7x multiple the market had on average after other large gains. Similarly, we look at expectations for earnings, what we have heard so far (JP Morgan noted deteriorating credit trends while Wells cited resilient spending), and what we think we might hear from companies as earnings season gets into full swing (hint: prepare for the word “uncertainty” to be a common refrain). Finally, we discuss the administration’s stated objectives of bringing back manufacturing and reducing trade deficits. What is not often mentioned is that this approach overlooks service surpluses, and is causing a sharp decline in foreign tourism, which may jeopardize these surpluses.

Learn more about Formidable Asset Management, Will Brown, and Adam Eagleston by visiting www.formidableam.com.

In the first half, we discuss the imminent arrival of “Liberation Day”, and why uncertainty over tariffs is causing consternation to consumer, business, and investor confidence. We look at the most recent inflation data from the government and examine the widely divergent inflation expectations based on political affiliation. We also tie this to the likelihood of further rate cuts and the necessity to drive rates lower as sizable government debt is due to be refinanced in 2025.

In the second half, we (finally) discuss what has been a challenging quarter for stocks, especially the Magnificent Seven:

• In the aggregate, the Mag Seven are in a bear market (down 20%).
• The S&P 500 is down 5% YTD and 10% below its all-time high, led lower by the Mag Seven.
• The average stock in the NASDAQ is 35% below its high.

The path forward for the market depends on the impact of tariffs and spending cuts, both of which are likely headwinds in the near term. With both valuations and earnings expectations still elevated, there remains downside in the event of either an economic or earnings recession. However, value stocks have performed well year-to-date, as have non-U.S. stocks, which are garnering attention as a result of changing U.S. trade and foreign policy. In other words, diversification has (finally) been helping.

Learn more about Formidable Asset Management, Will Brown, and Adam Eagleston by visiting www.formidableam.com.

In the first half, Will and Adam discuss the rapid deterioration in consumer sentiment and how it is cutting across both economic and political divides, albeit to differing degrees. Some sentiment indicators, especially concerns over job loss, are at levels normally seen during a recession, in part due to the uncertainty over tariffs with large trading partners like Canada. Another concern is spending cuts. We look past the headlines to see that cuts have not yet taken hold, though with 85% of job growth in 2024 attributable to government spending, we could be in for a volatile transition period as a result of the “detox” the administration is seeking.

In the second half, we look at the recent (albeit brief) market correction, and put it in historical context:

• Since 1980, the average yearly decline for the S&P 500 has been 14%.
• There have been about 117 10% corrections since 1928, so around one per year.
• Statistically, a 10% correction turns into a bear market around 25% of the time, and that normally occurs when the economy dips into a recession. The rest of the time, the market recovers in about eight months, on average.

Although modest, the 10% correction is equivalent to 12% of GDP. That type of hit to wealth has contributed to a recession in about half of the prior 12 occurrences.

With the Magnificent Seven, on balance, lagging this year, we look at the prospect of a broader market showing the benefits of diversification, not to mention the strong start to the year for non-U.S. stocks, which have been buoyed by the shift in spending priorities in both developed and emerging markets.

Learn more about Formidable Asset Management, Will Brown, and Adam Eagleston by visiting www.formidableam.com.