1st Quarter Update: Surprisingly Good Economic Strength

The one constant in economic assessments is, unsurprisingly, the ever present unpredictability of the unforeseeable. We recently wrote that inflation would begin to moderate again as the elevated levels caused by last spring’s tariffs roll off the year-to-date numbers this spring. But, alas, an armed conflict emerged literally out of nowhere, sending oil prices soaring and surprising the markets. Even if the conflict proves short lived, the damage to trust and stability in oil, the world’s most relied upon energy source, will take time and effort to repair before it can again be considered reliably stable and affordable for the global economy. Interestingly, the crude oil market has adapted admirably, continuing to meet global demand through a number of alternative sources, though at substantially higher prices.

Year End Summary 2025 – Political Economic Turbulence

The past year was marked by significant market turbulence, much of it stemming from policy uncertainty following the transition to a new White House administration. A series of “shock and awe” initiatives including sweeping tariff proposals, abrupt government spending cuts, and agency reorganizations were announced and implemented with little warning. Just as quickly, several of these measures were scaled back or reversed. While the administration clearly aimed to make an immediate impact, the pace and reversals of these actions often appeared more reflexive than reflective of a cohesive, long-term economic strategy. In response to these uncertainties, we took steps to manage portfolio risk. Throughout the year, we raised cash levels and reduced exposure where appropriate while carefully avoiding taking unnecessary taxable capital gains where possible. These actions were intended to mitigate potential longer-lasting market disruptions tied to policy volatility.

2nd Quarter Update: Tariff and Inflation risks remain, Summertime doldrums arrive at high market valuations.

The economy continues to soften but does not yet appear to be reaching a tipping point. Employment remains durable if not robust and consumer confidence together with consumer spending continues unabated. Housing however is beginning to show signs of weakness as more homes come on the market and prices have dropped modestly for the first time in many years. The technology sector has experienced some volatility as it navigates a path forward with expected trade deals and tariffs still in a state of flux. The AI and robotics sectors show no signs of slowing down.

The markets however seem to have entered a period of the summertime doldrums and appear to be drifting upward perhaps due in part to the exhaustion of getting whipsawed from the on again off again tariffs and trade deals. And it is true that several important trade agreements have been finalized with some of our important trading partners.

1st Quarter Update: Do Politics Really Affect the Economy?

We last wrote that the economy seems to be on a stable and moderate growth path. This remains the case despite the recent volatility in the markets caused by political pronouncements of fairly extreme upcoming policies. In the past I have repeatedly said that “politics” generally have little effect on the economy because the economy is vast and relatively immovable in the short term. Policy changes have a greater impact on the markets which tend to be very excitable. But, ill advised political policies tend to be self correcting over time as they morph into beneficial actions that positively affect the economy based on economics and real time feedback as the economy responds.

Having said that, the markets have been very volatile in reacting to the President’s policy announcements regarding trade and his envisaged role of government. His relatively extreme initial views have been modified and normalized due in part to reactions and feedback from the markets, his constituency and when the Courts curtailed some of his plans based on various legalities. It is not always bad to shake things up as long as one can gravitate towards positive reforms.