Stocks are up slightly for 2025 after five months. Is that surprising? After all, the S&P500 had lost more than 12% in the wake of the Liberation Day tariff announcements. As far as I am aware, no one has come out in support of the new administration’s trade policies. Some especially onerous items have been delayed, but does anyone believe it’s over?
My view is that the markets have overacted in both directions
The initial tariff sell-off had all the hallmarks of panic, inflamed by the media, and lacking in much analysis or perspective. It was true that investors were taken by surprise by the tariffs, although as I wrote earlier, they shouldn’t have been. Trump put tariffs in place during his first term and promised more of the same during his campaigns for the second term. He did what he said he would do.
Two factors explain the swift recovery. First, the reversal or delay of some tariffs forced investors to consider that there might be a plan or rational approach behind the blunt actions. The second factor is a misunderstanding (as far as I can tell) of how tariffs will flow through the economy. Recent economic data and consumer behavior has been resilient in the face of the headlines, which also appears to have surprised the Street. It shouldn’t have. The number one factor driving consumer spending is always employment. When U.S. consumers have jobs, they spend. Furthermore, the U.S. continues to add jobs. The overall economy has its own momentum, driven by investment spending, innovation, and other factors. Tariff headlines (or any headlines) are not going to bring to a sudden halt corporate actions which in many cases reflect years of planning and execution.
In short, the market sell-off reflected panic but current conditions are still good, so stocks recovered just as violently as they sold off.
Unfortunately, the tariff impact on the economy is still in front of us
For this reason, I see the recovery as an over-reaction as well. Over the past month, I have spoken with many large and small retailers, restaurant operators, and branded consumer products companies. These businesses are furiously working to develop tariff mitigation strategies but they will not be able to fully offset a border tax on nearly everything. In their public communications, companies have been coy about coming price increases. Two reasons. Firstly, who wants to be targeted by the administration by tying price increases to tariffs? No one. Secondly, it is not in a retailer’s interest to advertise to consumers that they will have to pay more for products that haven’t changed.
I will deliver the bad news. You will soon be paying more. I am hearing that prices for automotive parts will be up 10%. Cowboy boots and running shoes will cost you 5% more. Beauty products will be priced at least 5% higher. Restaurants were already planning 3%-4% price increases, even before the tariffs. I could go on but I have made my point.
What will happen when consumers are forced more for many goods? They will buy fewer items and cut back on discretionary spending. What they won’t do is to stop spending altogether, provided employment remains robust. Is there a breaking point where high prices will cause consumers will sit on their hands, forcing the economy into recession? Probably. However, if it didn’t happen in the post-Covid inflationary wave, it’s not obvious how to identify that breaking point.
How should you manage your investments with this backdrop?
I can’t answer that question for you*, but I can tell you how I am managing my portfolio and client accounts. First, acknowledge and accept that there is always uncertainty. If it’s not tariffs and not a global pandemic it will be something else. It will be something never-seen-before, emotions will get involved and the market will overreact. That’s what markets and people do. My strategy is not to trade these unpredictable headlines because on a fundament basis that is reacting to past events, whereas investing is about anticipating the future. Instead, I stay mostly invested all the time, and to focus on owning high quality, cash-generating companies that can grow over the long-term.
Travel Update: In June, I am starting with a quick one-day trip to Washington D.C. where I will meet with the management team of a hot restaurant concept, Cava Group. From there I will fly to Vail, Colorado, where I will attend and present at a value investing conference. The second half of June will be in Southampton, New York. The tour continues with trips to Cleveland, OH and possibly Peoria, IL, in early July. Yes, even Peoria. That’s when you know things are getting really good. If you are going to coincide with me in any of these places, please get in touch.
*This is not a recommendation. Please consult your advisor for investment advice tailored to your risk tolerance and investment profile.
Feedback and commentary welcome. Would you like to learn more about how we invest in the markets? Please click here to get in touch.
John Zolidis
President & Founder
Quo Vadis Capital, Inc.
John.zolidis@quovadiscapital.com
Mr. Zolidis has more than 25 years’ experience as an equity analyst. In 2017 he founded Quo Vadis Capital, Inc., a Registered Investment Advisor (RIA) offering investment management for individuals and an idea service for professional investors. He is a frequent presenter at value investing conferences around the world and a guest lecturer at Columbia Business School. Prior to founding Quo Vadis, Mr. Zolidis was a sell-side analyst following the consumer sector. He also managed money in a buy-side role at a long-short equity fund over 2013-2014. He was named in the Wall Street Journal’s Best on the Street list in 2005. He was named a RETHINK retail Top Retail Expert for 2025. He started his career in finance in 1996 following degree studies in Philosophy at Kenyon College and the University of Oxford. Mr. Zolidis and works from New York, NY and Paris, France or wherever he has his laptop.
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