Tariffs – Meh?
I struggle to write these comments hoping they will remain relevant by the time you read them. Geopolitical news, Federal Reserve committee member speeches, and let’s not forget Social “tweets” can all move markets and bend investment and interest rate trends in a minute. But… here’s what we see today.
Markets, both equity and bond, seem to be looking through current data and any resultant turmoil there. Rather, equity markets suggest a landscape of reduced fear – the low VIX for example (for those who like to get into the weeds) and one that perhaps believes the Federal Reserve will reduce rates and continue to make financial assets the preferred wealth store it has been over the decades.
This too shall pass
We mostly agree with the general presumption that “this too shall pass” but we have a few observations that paint a cautionary “but” into the timeline. I will thank Neil Dutta of Renaissance Macro for his analysis on a recent airing of Bloomberg Surveillance for the core of these ideas.
- Housing is moving into recession – we see weakening construction figures and a beginning of a decline in housing prices.
- The consumer – that’s us – is becoming a little sluggish. We are being cautious with spending, and our spending on services has been slowing even more rapidly than spending on “stuff.”
- The labor market is showing a fading momentum, but there is no sign of a steep drop here. If consumers remain employed, they will spend.
- AI investment has been a significant driver of the recent equity market surge and there is no sign of a letup anytime soon.
How do tariffs fit into these assumptions?
Let’s be clear – tariffs are a tax and eventually tariffs will produce lower consumption as their effects seep into the economy, probably more in 2026. Whatever goes into price will come out of quantity. If prices increase, the volume of goods and services will contract. The Producer Price Index (PPI), which is he first rung on the “inflation ladder” gave us a real surprise this week with indications that inflation is hitting producers or companies now more than expected.
What do we do with this information and these assumptions? We see opportunity. Tariffs should give a lift to positions in International equity. Geoffrey Morgan of Bloomberg recently suggested that tariffs and trade uncertainty will have an outsized negative impact on Corporate America’s earnings growth. Also, the valuation gap between US companies and the lower cost (as measured by p/e) ex-US companies is historically wide now and we believe will remain or grow over the next several years. With this as a base assumption we will be increasing our allocation to International positions over the next several quarters.
In summary, we believe the labor market may be in a kind of stasis with no significant new hiring, but no layoffs either. We consumers will keep spending, cautiously. While the economy is slowing, it is not in any freefall. All of this suggests the Federal Reserve may wait to lower rates, and until we get more clarity, like the Fed, we will maintain much of our current diversified allocation strategy until we see what evolves in the coming quarters.
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The views stated in this letter are not necessarily the opinion of Cetera Wealth Services LLC and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change with or without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results. Investors cannot invest directly in indexes. The performance of any index is not indicative of the performance of any investment and does not take into account the effects of inflation and the fees and expenses associated with investing. All investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy will be successful.
Quarterly Comments August 15, 2025
Tariffs – Meh?
I struggle to write these comments hoping they will remain relevant by the time you read them. Geopolitical news, Federal Reserve committee member speeches, and let’s not forget Social “tweets” can all move markets and bend investment and interest rate trends in a minute. But… here’s what we see today.
Markets, both equity and bond, seem to be looking through current data and any resultant turmoil there. Rather, equity markets suggest a landscape of reduced fear – the low VIX for example (for those who like to get into the weeds) and one that perhaps believes the Federal Reserve will reduce rates and continue to make financial assets the preferred wealth store it has been over the decades.
This too shall pass
We mostly agree with the general presumption that “this too shall pass” but we have a few observations that paint a cautionary “but” into the timeline. I will thank Neil Dutta of Renaissance Macro for his analysis on a recent airing of Bloomberg Surveillance for the core of these ideas.
How do tariffs fit into these assumptions?
Let’s be clear – tariffs are a tax and eventually tariffs will produce lower consumption as their effects seep into the economy, probably more in 2026. Whatever goes into price will come out of quantity. If prices increase, the volume of goods and services will contract. The Producer Price Index (PPI), which is he first rung on the “inflation ladder” gave us a real surprise this week with indications that inflation is hitting producers or companies now more than expected.
What do we do with this information and these assumptions? We see opportunity. Tariffs should give a lift to positions in International equity. Geoffrey Morgan of Bloomberg recently suggested that tariffs and trade uncertainty will have an outsized negative impact on Corporate America’s earnings growth. Also, the valuation gap between US companies and the lower cost (as measured by p/e) ex-US companies is historically wide now and we believe will remain or grow over the next several years. With this as a base assumption we will be increasing our allocation to International positions over the next several quarters.
In summary, we believe the labor market may be in a kind of stasis with no significant new hiring, but no layoffs either. We consumers will keep spending, cautiously. While the economy is slowing, it is not in any freefall. All of this suggests the Federal Reserve may wait to lower rates, and until we get more clarity, like the Fed, we will maintain much of our current diversified allocation strategy until we see what evolves in the coming quarters.
____________________________________
The views stated in this letter are not necessarily the opinion of Cetera Wealth Services LLC and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change with or without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results. Investors cannot invest directly in indexes. The performance of any index is not indicative of the performance of any investment and does not take into account the effects of inflation and the fees and expenses associated with investing. All investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy will be successful.