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.    

 

 

Gold continues to make new highs. Soft commodities and materials climb a wall of worry and foreign equities rise from the dead. It is all part of a market mindset that a tariff war is right around the corner.

 

As April draws near, President Trump continues to reiterate that he is planning to levy tariffs on America's trading partners. Investors are worried. Given Trump's predilection toward hyperbole, the markets are unsure whether to take his statements at face value. He has used threats to get what he wants on so many occasions that April could come and go without any tariffs at all. What to do?

 

The move higher in some commodities is largely a tariff hedge that the president isn't bluffing this time. Tariffs would make the price of materials, food, and other goods rise here and abroad. Many companies during this week's earnings results warned that tariffs, if levied, would hurt profit growth. The mega-retailer, Walmart, although announcing strong corporate sales and profits on Thursday, sounded the same word of caution. They gave a downbeat outlook for the remainder of 2025 if tariffs are levied.

 

More than ever, investors are rushing into precious metals as a haven. Gold and silver have been rising for months as individuals, institutions, and central banks buy every pullback. Back in September 2024, I advised readers to buy any dips in precious metals ("Precious metals normally fall in September"). Over the last 14 months, gold prices are up 50 percent with gold's market cap now at $20 trillion.

 

This week, geopolitical tensions have risen (not fallen) as American envoys met with Russian representatives in the first of a series of peace talks. The three-year war of attrition was upended this week when the president seemingly switched sides in the ongoing conflict. 

 

Investors fear that any peace treaty would be short-lived if America abandons support for Ukraine. The possibility of a wider future war in Europe with nuclear implications, absent any U.S. influence, has markets on edge. After all, radioactive fallout knows no boundaries.  However, many American voters and much of the media they follow have been cheered by Trump's initiative and willingness to end the conflict quickly regardless of future consequences.

 

While this has created shockwaves among some, especially among our European allies, it is no surprise to me given what I know of populist movements throughout U.S. history. Authoritarian leaders are springing up throughout the world. Those same trends are rising to the surface in political elections throughout Europe In the case of the European Union,  it remains to be seen how this conflicted group of nations will respond to the administration's overtures to Russia.

 

In the meantime, switching gears to the world's second-largest economy, China, the news is better than good. On May 7, 2024, I wrote, "The Chinese Market is on a tear," pointing out that Chinese equities were cheap. Monetary and fiscal stimulus by the government was and is ongoing. Despite American investor's "uninvestible" attitude, I liked what I saw. I even posited the notion that Trump, if elected, was the ideal person to make nice with the Chinese. After all, it was his first term's tariff war that started the Chinese bashing in the first place.

 

In January of this year, in "Trump and the China Trade" I advised readers that China could be the ultimate Trump Trade. Fast forward to today and what have we discovered? On Thursday, a Bloomberg headline stated that "Trump says new China trade deal is possible despite tensions."

 

This week, the  'uninvestible' crowd — Morgan Stanley, Goldman Sachs, JPMorgan Chase & Co., and UBS Group AG — turned bullish on China and its stock market. Of course, the stock market is up 20 percent from my January column but better late than never, I guess.

 

Over the past 10 days, the S&P 500 Index has seen multiple intra-day pullbacks in which traders bought the dip seven times. At the end of the week, the S&P 500 gave way to the uncertainty that seems to be around every corner. I have seen this playbook before. Don't fall victim to the "what ifs." Continue to buy the dips.

 

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.

For the fourth straight month, the Consumer Price Index registered higher inflation. That has dashed any hope that the U.S. central bank would loosen momentary policy further in the months ahead. And now the country faces even higher prices if tariffs go into effect.

 

The most recent University of Michigan survey of consumers indicated that inflation expectations for the next year increased to 4.3 percent in February. That is one percentage point higher than January and the highest since November 2023.

 

Wednesday's Consumer Price Index (CPI) data for January increased 3 percent over the prior year and 0.5 percent over the previous month. That surprised markets but came in spot-on with my forecast. As readers are aware, I have been warning investors since October that inflation was climbing, and it has done so for the last four months.

 

While a stunned Wall Street pointed to seasonal factors as the culprit, we all know that is a load of bull dinky. The latest inflation numbers were higher in almost everything: autos, insurance, drugs, rent, housing, education restaurants, groceries — the list goes on. On Thursday the Producer Price Index (PPI) echoed the increases in the CPI with  U.S. factory gate prices rising 0.4 percent month over month.

 

Jerome Powell, chairman of the Federal Reserve Bank who was testifying before the House as the numbers were announced, admitted that "we're close but not there on inflation." He had already advised the market not to expect rate cuts and reiterated that "we want to keep policy restrictive for now."

 

With no help from the Fed, where does that leave the markets? Waiting for Donald Trump's tariff onslaught. There are relatively few in the financial markets who believe that tariffs will not add fuel to the inflation fire. Since the election, even the president and his cabinet have admitted that Americans will feel "pain" in the short term from his policies.

 

It may be why he did not implement reciprocal tariffs on foreign nations on Thursday. Instead, he signed a memorandum to "review" such tariffs. That gives him time to negotiate with our trading partners without adding tariff pressure to the inflation rate.

 

Critics also say government spending has been a big part of U.S. economic growth. If you add up lost federal jobs, declines in immigrant labor, and the fallout from the reduction in the size of government overall, the impact on the economy will result in a period of slower growth. In which case, my forecast of a bout of stagflation will prove accurate.

 

However, before you run for the hills, there may be some silver linings in these storm clouds. Peace in the Middle East and between Ukraine and Russia would go a long way in reducing the price of oil. And oil, as you know, is a big factor in the inflation equation. Energy prices have declined for several weeks, and I expect that to continue. It is one reason I see a decline in the CPI for next month.

 

I also believe Trump's tariff strategy is a means to an end and not a permanent fixture in the global economic landscape. He was elected primarily to solve inflation and while he can still blame this month's spike in inflation on Biden, he can't do that forever.

 

Looking back through history, voters in populist times have a short fuse. They expect politician's promises to be kept, and soon, especially when it comes to bread-and-butter issues like groceries. The pressure to succeed in a trade war needs to be weighed against the damage it causes on the inflation front.    

 

And yes, we may see a dip in economic growth because of reduced spending and increased efficiency throughout the government but it should also put a dent in the deficit and hopefully reduce the country's debt load.

 

The stock market appears to have taken the hotter inflation news in stride. However, I think much of the gains this week had more to do with the delay in reciprocal tariffs rather than inflation fears. Was it an accident or leaked information on tariffs that turned the averages around on Wednesday as they plummeted after the CPI print? The S&P 500 Index climbed further on Thursday completely ignoring the hotter PPI.

 

In any case, I have repeatedly warned readers not to tariff trade. President Trump has a long history of using the media to broadcast one intention while doing the exact opposite behind the scenes. My buy-the-dip strategy over the last few weeks seems to be paying off as has my recommendation to buy China and precious metals. Volatility will remain the game but, I am looking for new highs in the days ahead. 

 

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.