Ken Mahoney
Connor Mahoney
An analogy for what is going on is like a pitcher coming in and intentionally loading up the bases, and then trying tot get out the jam. The amount of ‘savings’ we are going to get as a percentage of GDP, or a percentage of the national debt, while losing trillions in market cap in the blink of an eye and possibly pushing us into a recession within a few months might be the worst trade off in economic history.
This has pushed the Nasdaq into a bear market as of 4/4, more than 20% off its highs velocity pushing is close to bear market territory from the highs, and the S&P 500 and Dow are not far off. This velocity of the selloff is just second to the velocity of the covid selloff. The worst part is that it is entirely self inflicted.
The Trump administration is not taking much responsibility and is brushing off the impact the policies are having, as the treasury secretary said himself that the Mag 7 problem is not a MAGA problem, and that this was due to Deepseek. Deepseek may have been the cause for a correction, but tariffs are the cause of this rolling crash.
It is unfortunate for the working class and investing public who are in stocks because they don’t have a pension, they don’t ask for handouts and yet, this is what they get handed. One way or another we were most likely due for a correction, but the reasoning and speed of this one leaves a sour taste in everyone’s mouths, and could turn into a larger and deeper bear market unless something changes rather quickly. Trump is losing but he doesn’t even know he’s losing, and if course doesn’t change rather quickly then we are in for a world of hurt.
If you are keeping score of where capital is flowing around the world it is certainly out of US markets, as we are down double digits from highs, meanwhile in China and Germany for example, they are up double digits. So someone has wrong here and someone has it right, and markets are never wrong.
In real time as well, we have consumers like a deer in headlights and we undoubtedly will continue to see poor consumer confidence readings, home improvement projects getting slashed, travel getting slashed, businesses falling under, the whole 9. The market is like a real time poll and a mover of wealth effect and this is going to impact all businesses in one way or another undoubtedly.
We saw some more info from the purchasing manager index on manufacturing released by the ISM, it showed that customers (businesses) are pulling orders with anxiety about pricing pressures, and that business conditions are deteriorating at a fast pace, and whether or not demand destruction will occur with higher prices.
They cited that new order levels have increased but this may be short lived since they are trying to build inventory to get ahead of ]tariff related costs. Even anecdotally, as we have clients that work in many different sectors, we are hearing that certain projects are being cut or slowed down for various reasons all revolving around tariffs.
We can expect some pre announcements this earnings season, as you have to question what guidance a company can really give in this scenario when things are looking so dire. Even before tariffs were actually set in stone, we heard from companies like Walmart and Delta for example that we remember, that they were already seeing a slowdown as the tariff talk just started so we can only imagine what they are going to say now.
Trump, and maybe it is intentional as some believe, is boxing in the fed. We have tariffs now, and even before that as Powell hinted at during the last fed day signs of stagflation as well. We have seen people going crazy on Twitter/X calling for rate cuts which we think would be reckless by the fed.
We have had tariffs for such a short time, and and no one wants to see the fed act that panicky, because the market may possibly truly go into full crash mode worse than it already is if that is even believable if that were to happen.
This situation is also very unnecessary and unfortunate because we had broken supply chains and a pandemic that sent us into shambles which of course was an exogenous event, which were now fixed and the fed fought inflation and got it down, and we had an economy that was growing and stable unemployment. And here we are, with the president creating our own exogenous event. So it feels like we are shooting ourselves in the foot, and this more or less is a broken supply chain now with the way the costs are aligning.
If you have a longer time horizon as much as we dislike the scenario we are in for the markets, this too shall pass. If you are shorter term, we are likely to have some large rally and they usually are the most intense among these conditions and that can be your chance to sell some. We are ways away from a bottoming process, as we haven’t seen a higher low formed and keep making new lows. Until we get some area where the selling dries up, we are still in full downtrend mode.
If you have been in cash, good for you, and it could be a good time to DCA into the indexes. We are not in love with any individual stocks until the indexes can prove they are stabilizing at least. But our go to are still mega caps like AAPL, MSFT, NVDA, and the rest of the Mag 7 crew because they will be able to weather the storm better than any other group since they have the largest balance sheets, they are still buying back stock, have the strongest business cores and widest moats, and we know capital has to flow there eventually.