It has been a great run. For 15 years, the U.S. stock market has been the envy of the world. Led by the FANG stocks, global investors could not get enough of American stocks — until now.

 

By the end of 2024, global investors had committed more capital to America than ever before. At the same time, the dollar traded at a higher value than ever since the world abandoned fixed exchange rates 50 years ago.

 

While America's share of the global economy was 27 percent, its stock market represented 70 percent of the worldwide stock market. Since 1992, every year China has grown closer to the U.S. as the world's biggest economy. China's GDP has grown 6.5 times as fast as America's, but U.S. stock returns have been 3.5 times as high. China, which makes up 17 percent of the global Gross Domestic Product, has captured less than 3 percent of worldwide market investments.

 

This has not always been the case. At the beginning of the 20th century, for example, the U.S. accounted for less than 15 percent of global equity markets. Since then, we have improved with gains throughout the 1950s and 1960s. Japan at one point in 1989-1990, caught up with our gains but quickly reversed while we continued to gain. 

 

U.S. markets have outperformed all other markets in eight of the past 10 years. And the global market for private-sector investments, which includes equity and credit, is huge. Some companies estimate it is more than $100 trillion. 

 

In the first decade of this century, our ranking fell during the financial crisis but shot up as productivity growth boomed. Productivity is creating more output with the same amount of labor. Over the last five years, American economic output per hour worked rose almost 9 percent despite the COVID-19 setback.

 

The dominance of U.S. returns was also helped by a variety of other factors such as accelerating earnings by U.S. corporations improving profit margins, and cleaner balance sheets. In addition, U.S. firms have had greater success expanding overseas. Prior to 2010, 30 percent of U.S. corporate profits were generated overseas. That number has since expanded to 40 percent.

 

Another reason for U.S. outperformance is our ability to take risks. America has been a fertile ground for business formation and risk-taking is part and parcel of starting a new business. 

 

But regardless of how efficient Corporate America and the private sector overall are, it has had enormous support from the government. While America went on a debt spree, Europe, for example, practiced austerity. All that government spending boosted corporate profits considerably.

 

In 2025, however, the mood toward American dominance has soured. Just weeks ago, U.S. investors were hailing Donald Trump's second term as the beginning of America's golden age. His blend of tax cuts and tariffs would accelerate economic growth and boost American dominance once again. Next week, we will focus on the risks that could reverse our No. 1 position in capital markets.

 

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.

It is getting to be a regular occurrence. The U.S. Treasury runs out of money and warns Congress that they need more. Politicians on both sides strut and crow but delay until the 11th hour only to pass another "continuing resolution" for a few months. Will it ever end?

 

Exactly what is a continuing resolution (CR)? They are temporary spending bills that allow the federal government operations to continue when final appropriations have not been approved by Congress and the president. CRs are never-ending stories with a shelf-life of 2-3 months.

 

This time, the deadline is March 14. Has anything changed? Well, yes and no. The factions within the Republican party are still around, with scores of Republicans who routinely vote against funding the government. At the same time, the narrow GOP House majority of last year is narrower still. The Republicans versus Democrats score card is 218-214 (with the death of Texas Democrat Sylvester Turner on Tuesday) in this new Congress. That makes it probable that to pass another CR, Democrat votes will be needed.

 

In prior votes, Democrats have stepped up to the plate to support short-term bills but that was under a president of their own party. However, that was then. President Trump's program of slashing government workers, efficiency efforts by DOGE, the threatened upending of entire departments, and the administration's effort to control spending have the minority party in no mood to compromise.

 

The Democrats argue that Congress, not the president, holds the power of the purse. Unless there is explicit language in the bill that limits the involvement of the executive branch in spending decisions, many Democrats will not be a party to a compromise. Other Democrats insist that there also be included written constraints that would rein in Trump and Elon Musk's attempts to close or reduce the size of government agencies.

 

The opposition is also against several GOP add-ons to the bill including $32 billion in transfer authority for the Defense Department, a $20 billion cut to IRS enforcement, and an increase in funding ICE deportation operations. Of course, the Republicans are laughing at these Democrat demands and have no intention to compromise either.

 

Within the Republican Party, the Freedom Caucus voted last week to go along with the rest of the majority to pass a budget resolution to raise the debt ceiling by $4 trillion. The chairman of that group, Rep. Andy Harris, has already signaled that the group is on board to pass a continuing resolution as well. But there are at least two Republicans who say they are sick and tired of kicking the can down the road and want a full appropriations bill passed. 

 

Every president, including Donald Trump, would like to put an end to these constant bills that last for a month or three, but a full funding deal seems out of reach. The most that can be expected is maybe another short-term bill to keep the government running on autopilot until the end of the fiscal year. You can be sure that the administration will be doing its utmost to make sure every one of the party faithful votes yes on March 14th.

 

If a deal fails to be passed, Donald Trump has proven that shutdowns do not deter him.  It happened during his first administration when Congress failed to fund his proposed wall along the southern U.S. border. The partial government shutdown was the longest in U.S. history.

 

 This time around there would be some unintended benefits to a shutdown from the administration's point of view. For one, government spending would come to a standstill for the most part. That helps when your stated aim is to reduce government spending anyway. For another, thousands of government workers would be laid off, some of which could be permanent if the administration so desired.  That also coincides with their effort to reduce the size of government.

 

In any case, whatever happens will be dragged on until the last bit of free airtime is used up and every legislator has his or her comments duly recorded for posterity. Some things never change. In Congress, it appears as if it is business as usual when it comes to spending.

 

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.    

 

 

They love their country. As such, it is no surprise that many veterans would want to continue to serve their nation after discharge. It is why so many vets apply to work for the federal government. That partnership seemed to work out for both parties—until recently.

 

For those of us who have served in the military, we have done so out of love for our country. When it called, we stepped up. In exchange, we learned a lot of good things in the armed services. For me the list is long. Leadership, teamwork, a strong work ethic, the ability to handle stressful situations, self-direction, and motivation come to mind. I am sure I have missed some.

 

These attributes make vets an incredible asset in the workplace; something long recognized by the government. Working for the government was a marriage made in heaven for many vets. Many veterans viewed working for the government as a way of extending that sense of purpose and belonging they found in the military. Not only could they continue serving their nation, but they could also help their peers outside of active duty. 

 

In addition, the federal government, recognizing their value, offers a "veterans' preference" which puts vets at the front of the line when choosing qualified candidates for employment. The Veterans' Preference Act was established in 1944. It entitled veterans who were disabled and/or served on active-duty preference for virtually all government jobs.

 

The trend was self-reinforcing. The more veterans that worked for the government, the more the atmosphere of camaraderie and understanding among co-workers deepened. Another attraction is the government's generous retirement benefits that allow a vet's years of military service to count toward their federal pension.

 

Given this background, it should be no surprise that veterans made up 28 percent of the federal workforce in 2024, compared to 5% in the private sector, according to the U.S. Office of Personal Management (OMB).  Of that number, more than 200,000 vets are disabled or have a serious health condition.

 

Unfortunately, the Department of Government Efficiency (DOGE) has failed to account for veterans in its campaign to reduce the federal government workforce. What is worse,  veterans are spread out throughout various government departments, which makes downsizing even more dicey for this group.

 

Military veterans have tended to affiliate with the Republican Party and its candidates historically. About six in ten registered voters (61 percent) who say they have served in the military or military reserves supported President Trump in the 2024 presidential election, according to the Pew Research Center. In the past, President Trump has favored veterans on various occasions including improving VA healthcare, education benefits, and reducing homelessness among vets, but not this time. 

 

Many Republican legislators, while publicly cheering the administration's push to cut federal government workers and services are privately attempting to backchannel the powers to be on behalf of veterans. They are not only concerned that the dismissal of military veterans will alienate their base but are also concerned that many federal services that veterans depend upon,  like the Veterans Administration, could be cut back as well. That is already starting to happen.

 

The federal government has dismissed 1,400 VA probationary employees this month although a few senators have succeeded in getting the Trump administration to reinstate some fired employees. 

 

The new Secretary of the Department of Veteran Affairs, Doug Collins, a career politician, who once served a brief stint as chaplain in the U.S. Air Force Reserve, crowed on the DOGE social media conduit, X,  that he has found $2 billion in savings thus far by axing outside contractors who do things like train and coach vets seeking jobs in the private sector. He promises even more cuts in the future. Collins also urged viewers not to let senators, congressmen, and the media scare us into stopping his downsizing efforts.

 

I come down on the opposite side of his argument. Finding and keeping a job is crucial to many veterans transitioning into civilian life. Reconnecting with society through jobs is particularly important during this period. As it is, veterans face higher unemployment rates and poverty levels than non-veterans, making employment even more vital for their economic well-being. Doubly so, for those who are handicapped. The VA is an important backstop in these efforts as well.

 

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.