On April 2, Donald Trump has threatened to levy tariffs on several nations. This is in addition to the tariffs he has already imposed on China, Mexico, Canada, and now global auto producers. The question is whether the "if" in tariffs is still possible.

 

No, it isn't. The president is making good on his campaign promises to create an even playing field between the U.S. and our trading partners. Steel, aluminum, and the global auto tariffs he announced Wednesday evening are only the beginning.

 

Unlike his first term, this time around his tariff initiatives will be "extensive, explicit and enforced," as one hedge fund manager told me. That will be bad news for the financial markets but there may be a silver lining.

 

I have often said that markets can absorb and adjust to both good news and bad. If the trends are negative, investors and traders can hedge their portfolios, or move to the sidelines. Good news, as we all know, is much easier. Buy what you can and as much as you can. What the markets cannot deal with is uncertainty.

 

My readers are old enough to remember the presidential elections. The narrative among financial markets was that the country under Trump's presidency would mean four years of higher corporate profits, rising stock markets, the end of our debt crisis, and the Ukraine conflict.

 

Sadly, many investors, traders, and company managers focused on the positives but ignored the negatives. The financial markets and many voters bought into the campaign promises of the winning candidate lock, stock, and barrel. It is understandable. In populist times like this, hope springs eternal once every four years during presidential elections.

 

However, since the inauguration, investors as well as corporations and small businesses have been dealing with a mountain of uncertainty. Radical and sudden change will do that to you. Few had done the math on what tariffs or downsizing the government would do to the economy and inflation. How exactly would the president reduce the nation's debt or end the Ukraine/Russian war, and what would the downside be?

 

Those issues were dismissed as negotiating tactics or, as part of America's long tradition of campaign promises, were never meant to be kept. Instead, we discovered that Donald Trump was deadly serious in his intentions to radically transform the nation and its political and economic system quickly. "Burn it all down," was not just a stump speech.

 

The changes taking place in downsizing government and reducing the workforce are ongoing. No one, not even the Fed, knows how this will turn out. Uncertainty has become a popular word. Fed Chair Jerome Powell used the word "uncertain" 22 times during his March 19 FOMC meeting remarks.

 

If you throw in the daily threat of tariffs, you have a perfect storm of uncertainty. Donald Trump's on-again, off-again, tariffs have left investors uncertain and stressed out with their finger on the buy or sell trigger hourly. That is why the S&P 500 Index is off by more than 10 percent while markets overall are experiencing 1-2 percent swings in the averages almost every day.

 

The announcement of tariffs will remove at least one level of uncertainty from the markets. Of course, that won't resolve the issue in its entirety, but it might help to calm the markets for a little while — until the next shoe falls.

 

We do not know what our trading partners will do, or what the U.S. response will be to their reactions. They may retaliate or they may negotiate. In addition, we still need to grapple with the rest of Trump's initiatives and their impact on the economy, inflation, and employment. That can take another 3-6 months. You can read my thoughts on the subject in this week's column, "The Trump Economy 101."

 

Unfortunately, after two-plus years of great returns, investors are paying for those gains this year. On June 27, 2024, in my column,  "What can investors expect from the coming era of populism" I warned readers that in the last populist era between 1964 and 1982, stocks went nowhere — except in election years.

 

As for the short-term, I expect more of the same in markets. I predicted a dead cat bounce last week and we got that for two days. However, the auto tariff announcement ended those gains. We could see the market test the March lows before another move-up sometime in April, although once again it would be temporary. Alas, we are Trump-dependent, and he is no friend of the stock market nor are many of his voters. Why would that be the case?

 

Many of his following have little if any savings and none in the stock market. In the last election, Trump captured the vote of lower-income household voters who earned $50,000 or less, while those making $100,000 or more voted for Harris. It seems a safe bet that the stock market is meaningless to many of his supporters, although not all. I would hazard a guess that the stock market rout to them is simply another example of how the deep state works to undermine the president's initiatives, at least according to the comments I have read from far-right media figures.

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

This week, the Federal Reserve Bank hiked its inflation forecast and reduced the growth target for the economy this year. Despite this news, traders termed the March FOMC meeting a "dovish pause," although it did not help the stock market.

 

The upshot of Chairman Jerome Powell's Q&A session on Wednesday afternoon after the FOMC meeting was that as far as the future is concerned, the Fed would need to wait and see just like the rest of us. In the meantime, the bank decided to slow its quantitative tightening program. That was interpreted as dovish by most Fed watchers since it does add liquidity to the credit markets.

 

Powell did say tariffs would probably add to the inflation rate (from 2.5 percent now to 2.8 percent). Although for the most part, he believed these measures would be "transitory." The rate of economic growth would also fall from 2.8 percent in 2024 to 1.7 percent this year.

 

Those forecasts, while not what I would call a full-fledged period of stagflation like we experienced in the 1970s, are akin to my own expectations. I would call it a brief bout of stagflation but with a small "s." I see a quarter or two of slower growth and a smidge higher inflation rate, but I do not see these trends remaining in place for the full year.

 

"I don't know anyone who has a lot of confidence in their forecast," admitted Powell, but the median of Fed officials still expect two rate cuts this year. However, their conviction on where things are heading is weak, and understandably so. After many years in the driver's seat, the Fed is now in the back seat as far as the economy is concerned.

 

Fiscal policy as interpreted by Donald Trump is now calling the shots. Depending on how badly the coming tariff war develops, the administration's overall trade policy, spending cutbacks, immigration restrictions, and deregulation, we could see a recession.

 

However, if tariffs turn out to be simply a negotiating tactic, as many expect, tax cuts do get passed, and somehow the deficit falls then growth could resume, inflation remains in check, and the markets could live happily ever after. I give 50/50 odds on these economic outcomes.

 

I hate "on the other hand" statements, but sometimes, they are what they are. Whether your cup is half full or half empty, I suspect, depends on your political persuasion. As Powell said, "I mean, it's really hard to know how this is going to work out." My sentiments exactly.

 

Unfortunately, the financial markets do not do well when faced with the unknown. As such, the present turmoil in the markets should continue. About the best I can say is that we should expect the daily 1-2 percent swings in the equity market to slow down a bit after this week after Friday's multitrillion-dollar options expirations. That does not mean the downside is over. The fate of the markets remains dependent on the news coming out of the White House.

 

Behind the scenes, the top men at Treasury and  Commerce and Trump's economic adviser, Kevin Hassett, are working hard to reduce the impact of the coming tariffs before the deadline. Scott Bessent, the U.S. Treasury secretary, appears optimistic they can work a deal between the U.S. and our largest trading partners to roll back tariffs before the April 2 deadline. If so, that would go a long way to alleviate the downside pressure on the markets.

 

At its low, the S&P 500 Index has been off by a little more than 10 percent. Since then, we have bounced, as I expected, but we could still retest those lows or even break them. Sentiment among market participants couldn't be worse. That makes me suspect there might be some light at the end of the tunnel. Of course, I could be wrong and that light at the end of the tunnel could be a freight train. Let's see what happens.

 

The market's decline has been one of the fastest in history. The fall has been fueled by the Trump administration's economic policies. The question most investors are wrestling with is what to do about it.

 

Looking back on this period in a year or two, I guarantee that most investors will have trouble remembering exactly what happened. There is nothing abnormal in this decline thus far except its speed. It is a simple garden variety pullback, which occurs at least once a year if not more. It is the price of doing business for equity investors and savers with tax-deferred retirement accounts.

 

Given that, the decline is probably a good thing for an over-extended market on the upside. Stocks normally take the escalator up and the elevator down. In the pain game, I believe fast is better than slow when dealing with the emotional side of investing. Hopefully, the markets will bounce before too many more negative emotions surface.

 

I say that because emotions are your greatest enemy when investing. It would be a rare reader indeed who isn't feeling worried and stressed right now when dealing with the market. The S&P 500 Index is down more than 10 percent, NASDAQ minus-17 percent and the Russell 2000 minus-18 percent.  Is it time to bail?

 

No. The time for that decision is past. A month ago, taking some off the table may have made sense. Today it doesn't.  "But what if it goes down even more?" Let it, at worst you are halfway through a 20 percent correction but more likely on the eve of a turnaround.

 

Tom Lee, the founder of FSInsight, and a frequent guest on CNBC, reminds us that since 1928 going to cash and missing the 10 best days in a year reduces returns from 8 percent annually to minus-13 percent.

 

September 2022 was the last time investors were this pessimistic, according to the American Association of Individual Investors (AAII).

 

At the end of February, the proportion of investors identifying as bearish reached 60.6 percent.  Historically, when this has occurred, the average subsequent 12-month return has been 24 percent.

 

How can you resist that desire to sell? Stop looking at your accounts. Watching your portfolio daily in a down market is behavioral suicide. Don't do that.

 

So enough with the pep talk. Instead, the market had some good news this week for a change. The Consumer Price Index (CPI)  and the Producer Price Index (PPI) came in cooler than most expected. I say "most" because my forecast of weaker inflation numbers proved accurate. Next month's data will show a 2.4 percent CPI, which will be weaker again. The following month should show a decrease as well. However, given the markets' focus on tariffs and Trump's economic policies, the inflation news did not matter to investors.

 

I expect the unemployment rate will rise as the administration reduces the number of the 3 million federal government workers. If you combine that trend with a slowing economy that is also being engineered by President Trump and his motley crew, we will have developed a perfect storm. That will provide a gateway for the Federal Reserve Bank to begin cutting interest rates once again.

 

Remember the Fed has two areas of responsibility: fighting inflation and maintaining employment. Chair Jerome Powell has already stated several times that the Fed now considers employment the focus of monetary policies. The bond market is already betting on a rate cut as early as May or June, with more to follow. That should be good for the stock market, which usually begins to discount events six months out.

 

Over the last few weeks, I have warned investors to expect as much as a 10-12 percent decline in the S&P 500 depending on the president's actions. He has delivered on that assessment and thus the markets decline. He continues to rile markets and therefore the potential for additional downside remains.

 

The latest University of Michigan consumer sentiment numbers dropped another 10 percent in March. Trump has now admitted his policies will cause at least a slowdown in the economy, higher unemployment, and as for inflation, who knows?

 

The president promises this will all be worth it for those who have faith. Depending on your political bent, you either believe him or not. The stock markets, however, do not deal in faith. The data says stagflation, which has been my prediction for several months. What does well in that environment is foreign markets that do not suffer from the same malady, bonds, and precious metals. This week, gold hit record highs, China and Europe climbed higher, and bonds did much better than stocks. 

 

As for the overall market, it is Trump-dependent, and the president has shown that he is no friend of the stock markets. Wall Street strategists and technicians are looking for at least a dead cat bounce. That is certainly possible given that we still have three weeks until the April 2 reciprocal tariffs are implemented. Who knows, the president might lose his voice in the meantime, change his mind on the tariffs or something may occur out of left field that we aren't expecting.  

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

The latest worry to plague Wall Street is lower growth and rising inflation. What is worse, the tariff war that President Trump insists will lead to a "golden age" for America is proving to be a nightmare for financial markets.

 

"There will be a little disturbance, but we are OK with that," the president admitted Tuesday evening in his address to Congress. His mission that night was to sell America on his vision of a new economy of high tariffs, low immigration, low taxes, and low regulation. Main Street is buying that message, with approval ratings of almost 70 percent of those who watched the address. Unfortunately, global financial markets are not so trusting.

 

This disparity should not surprise readers. Those who accept my argument that we are in a new era of populism understand that many Americans want massive changes to our political and economic systems. To these younger generations, this president is fulfilling his promises and quickly for the first time in decades. For those invested in financial markets, however, Trump's actions are hard to predict and seem to shift at a moment's notice.

 

While Trump's "tariff on, tariff off," strategy might be meaningful to Mr. Miyagi, Donald Trump is no Karate Kid. His shifting trade policy is not only causing wild 1-2 percent daily swings in the stock market but is making any kind of business and financial decisions for those in the corporate sector impossible. "Whiplash" would be an understatement.

 

Stagflation has suddenly become the leading story in the financial media. The world's economic community argues that tariffs are inflationary. The more tariffs the president levies, the higher the inflation rate. At the same time, Trump's efforts to cut government spending, which accounts for 27 percent of annual GDP, will slow economic growth. The reduction of a sizable number of federal jobs will increase unemployment and we are beginning to see that in the data.

 

This scenario has the markets and the business community ready to abandon ship. I believe the markets are overreacting, at least on the inflation front. As readers know, I expect a decrease in inflation indicators over the next few months. This is largely due to the steep decline in energy prices.

 

Lower oil prices are exactly what Trump promised to do and will go a long way in keeping inflation in check. Unfortunately, slowing economic growth is also the most efficient and fastest way to reduce inflation, which is another promise he made to the country. No pain, no gain certainly applies to the fight against inflation whether we like it or not.

 

This is why my stagflation forecast has proven accurate. Reducing the size of government in a country where government has become such a large part of economic growth by definition slows the economy.

 

Wall Street's belief that President Trump uses the stock market as a barometer of his progress as he did in his first term, needs adjusting. This time around he has made it clear that getting the yield on the benchmark, U.S. 10-year Treasury bond lower is his focus. He has made progress on that front as well.

 

Whether or not you believe the status of global tariffs is fair in U.S. trade terms is immaterial. Most of the country and its leaders believe it is unfair, and tariffs are the way to right that wrong. Whether you realize it or not, tariffs are a tax. Businesses and consumers pay that tax, and the government pockets the money. Given that the top 10 percent of earners in the U.S. account for just about 50 percent of consumer spending, the brunt of the tariff tax falls on them. That makes it a progressive tax.

 

Donald Trump is a master marketer. Only he could sell the country on as much as a 25 percent tax increase via tariffs and have you be happy to pay it. He knows there is no better way to slow spending while increasing tax revenues quickly. Whether you love or hate him, he is an instrument of change in a country that largely demands it. He is doing the job he was elected to do thus far, just not in the way that most of us would have preferred. 

 

The U.S. stock market has given up all its post-election gains. The U.S. dollar is falling as is the yield on the ten-year U.S. Treasury bond, which helps mortgage rates. Global investors are cashing in their American chips and moving those funds to emerging markets, Europe, China, and other parts of Asia.

 

The China exchange-traded fund, FXI, is up 24 percent since inauguration day while the S&P Index fund, SPY, is down 7 percent. Nivida, the most sought-after U.S. AI play is down 22 percent, while China's Alibaba is up 71 percent. I could go on, but you get the point. The performance of foreign stock markets has left U.S. equities in the dust. Investors who were convinced that a Republican election sweep heralded a booming U.S. stock market with American AI, the best play to buy in 2025 are instead nursing mounting losses.

 

The S&P 500 Index is down about 7 percent and has penetrated its 200-day moving average. The tech-heavy NASDAQ is down more than 11 percent and small caps are 15.4 percent lower. That is not a good sign.

 

I wrote last week that investor sentiment readings were extremely bearish. Today, fear and angst increased to levels not seen since 2022. Some are predicting as much as a 10 percent pullback. It is certainly possible and long overdue. The fate of the equity markets lies squarely on the shoulders of Donald Trump.

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

Tariff fears, inflation worries, and now, an economic growth scare, have conspired to sour moods in the markets. The Trump trade has all but disappeared and in its place, investors are looking for defensive areas to protect capital.

 

Uncertainty is the bane of any market's existence and right now that element is in abundance. This week we have seen concerns over inflation take a back seat to an even greater worry—a slowing economy. It began with last week's retail sales number. The data was weaker than many expected as consumers pulled back on their discretionary spending.

 

That could have been explained away as simply a bout of buying fatigue after the strong holiday season, which is normal. However, the flash Services Purchasing Managers Index, which tracks business activity in the service sector, also showed slower growth.

 

Coupled with those signs, as I mentioned last week, Walmart issued a cautious outlook for the rest of the year based on fears of a fall in purchasing power among lower-income consumers. Data released on Friday showed that consumers slashed their spending by the most since 2021 even as their income rose.

 

In addition, we have seen consumer confidence numbers and inflation expectations rise in the most recent consumer surveys. On Thursday, the government announced that the real Gross Domestic Product slowed to 2.5 percent in the final quarter of the year versus a 2.7 percent growth rate in the third quarter of 2024. It also showed weaker real spending growth relative to the third quarter.

 

Weekly initial jobless claims on Thursday jumped to 242,000, above expectations of 221,000 and up from last week's 220,000. Just think what will happen to jobless claims when the firing among federal workers starts to show up in the data. Pending U.S. home sales also slid to an all-time low in January as high mortgage rates, record-high home prices, and terrible weather kept home buyers away.

 

The Personal Consumer Expenditures Price Index (PCE), the Fed's leading inflation marker, came in as expected at 2.6 percent in January and was a 0.3 percent increase over December. That was no surprise to me.

 

I have been writing for months that we would see a back-up in inflation. I also warned that the economy would begin to experience a slowdown about now. The two together would create a somewhat mild stagflation-type environment. So now that we have achieved that state of affairs, what's next?

 

I expect the economy to continue to weaken and unemployment to rise somewhat in the coming quarter thanks to expected government actions on the spending, employment, immigration, and tariff fronts. There may even be a recession by the end of the second quarter or the beginning of the third quarter.

 

That potential outcome will depend on how deeply the Trump administration pursues its present policies.  However, I also see inflation falling simultaneously for the same reasons. As a result, chatter of a rate cut or two by the Fed will be back on the table for this year, which could support markets.

 

On tariffs, the president insists that the 25 percent tariffs on Canada and Mexico are on track to begin on March 4. An additional 10 percent tax on Chinese imports (bringing the total to 20 percent) will also be imposed. He also stated that the April 2 launch of reciprocal tariffs will remain in "full force and effect."  None of those statements improved investor sentiment as we closed out the week.

 

To add insult to injury, Nvidia, the AI semiconductor leader's fourth-quarter earnings results did not help either. While earnings, sales, and guidance were all good, the company's stock still fell as many investors believe that 'the bloom is off the rose' at least temporarily in the AI trade. At the same time, another of Wall Street's darlings, Tesla, the EV maker, has given up almost all of its Trump election gains. The slowdown in sales and Elon Musk's political involvement has driven the stock down 40 percent.

 

The risk-off mood has seeped into most other areas of the market. Gold and precious metals as well as bitcoin and other cryptos have fallen along with stocks. Technology shares continue to decline, and more and more analysts are expressing caution overall when it comes to the market.

 

Investor sentiment is negative wherever you look. The CNN Fear &  Greed Index is registering "extreme fear." The American Association of Individual Investors survey (AAII) had its lowest reading of bulls since March of 2023, while bearish sentiment is up over 60 percent. "In the entire history of the AAII sentiment survey, there have only been six other weeks when bearish sentiment was higher," according to Bespoke Investment Group.

 

My view is that the S&P 500 Index to date, is off by just a few percent from the all-time highs made less than two weeks ago. March is a traditionally tough month in the markets and while I see this pullback as a much-needed pause, the jury is out on how much lower we can go. Could we see further declines, say 8-10 percent overall in the month ahead? That determination is in the hands of one single individual, Donald Trump.