Market Update & Strategic Insights for February 2025
I hope this message finds you well as we kick off February! With a new administration in place and the uncertainty surrounding the impact of tariffs on the economy and investments, I wanted to take a moment to address some key points and provide clarity on how we're navigating these changes.
Tariffs as a Negotiation Tactic
Across the board, analysts agree that President Trump is using tariffs primarily as a negotiation tool. What I’ve observed in the market is a quick drop followed by an equally rapid rebound—driven more by emotional reactions than sound investment principles. For example, just today, Mexico responded to the situation by sending troops to the border and the US temporarily paused tariff-related actions. This led to an immediate market recovery. It seems likely that Trump is using this opportunity to address issues within the USMCA (US-Mexico-Canada Trade Agreement) while simultaneously tackling immigration and drug-related concerns.
Approach to Investing
I am an active investment advisor, meaning I stay nimble in buying and selling as market conditions evolve. However, my decisions are rooted in data and fundamentals, not fear-driven reactions. As the saying goes, "It's time in the market, not timing the market." My strategy is to always remain nimble, and to avoid making knee-jerk decisions based on market fluctuations. If tariffs are indeed enacted, I will consider further rebalancing based on the data at hand.
A Perspective on Tariffs: Macquarie's Insights
Thierry Wizman, global FX and rates strategist at Macquarie, offered an interesting take on the potential for permanent tariffs. He states: "Call us deluded, but we still think that permanent tariffs on the U.S.'s allies (Canada, Mexico) will not be a thing. That’s because concessions are an ‘easier’ way to deal with Trump’s ‘problems,’ and Trump likes to make ‘deals.’ Political and market pressure will also weigh on the parties to make concessions, as in 2018."
Investment Decisions Based on Policy Shifts
As you know, when Trump was elected, I made the strategic decision to exit energy stocks, given their historically poor performance during his first term. If I had exposure to pharma (which I generally don’t), I would have exited that sector as well. These decisions were informed by policy shifts, and I will remain committed to making similar adjustments when necessary.
Navigating Potential Inflection Points
I want to reassure you that I am closely monitoring market developments and remain prepared to act swiftly if key inflection points arise. I believe we should base our decisions on solid data and fundamentals that indicate a genuine shift in market conditions. Across the board, portfolios I manage have outperformed typical advisor returns, thanks to the risk-adjusted approach, including in times of down-markets.
It is important to be mindful of the trade-offs involved in shifting to more or ultra conservative strategies. Moving too far down this path can significantly reduce return potential. Similarly, for those considering larger positions in cryptocurrencies, the volatility in this sector remains a concern. The swings we've seen in recent years have often been driven by emotion rather than fundamentals, making it a particularly risky area for those unable to stomach very large fluctuations. Similarly, any downturn in the broader market would likely impact real estate values as well, as the two are directly correlated. Many of my clients are currently facing challenges in selling real estate given the prevailing market conditions.
Inflation and Fed Policy
Lastly, let's touch on the Fed. The Federal Reserve's inflation mandate is set at 2%, and we’ve seen inflation tick up slightly—December’s CPI came in at 2.9%, which is above the target. This is one reason why the Fed has refrained from further rate cuts. With many analysts predicting more rate cuts in 2025, the Fed’s credibility could be at risk if inflation continues to rise. In such an environment, further cuts would be counterproductive. As a result, I remain cautious on bonds at the moment.
Our Commitment to Your Investments
Rest assured, Lion’s Eye is closely monitoring the markets and your investments. Should the fundamentals warrant a change in strategy, we can move swiftly. If you have any questions or concerns, don’t hesitate to reach out—I’m here to provide clarity and guidance every step of the way.
