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.

3rd Quarter Update: Choppy waters, Tech Boom Yet?

The economy at present seems to be holding steady in a remarkably durable growth path. Despite the absence of important economic data from some of the temporarily shut down government reporting agencies, there are private sources of reliable information to draw from. We recently reported that the economy was slowly softening. This occurred in no small part because of the earlier sometimes erratic and significant policy changes in the administration that caused many companies and consumers in general to curtail spending plans. That effect has decisively abated as the policy turmoil has subsided. The economy seems to have weathered it fairly well.

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.

Year End Summary 2024 – Ongoing Modest Growth

Last quarter we wrote that the economy was sound on a solid growth path. Now despite recent volatility, we believe the markets too will continue to grow, that volatility will subside and growth will be modest. The sector rotation out of the high P/E growth tech stocks and into the smaller stocks in the broad market is ongoing, however, tech is, and always will provide higher growth ‘over time’. Inflation is slowly approaching the two percent target and interest rates are slowly falling, but as described below may remain at these levels for some time. Absent a credit crunch on the horizon, we no longer see a return to the historically low levels of the past decade.

3rd Quarter Update: More of the Same – Strong Economy

1st Quarter Update Summary – Still Waiting for Landing

Last quarter, our technology stocks performed very well due in large part to our emphasis on AI. Nvidia, the dominant supplier of GPU chips used in AI was the driver of those gains and eventually became overvalued and becoming destined to return to reality as is now happening. This recent retreat was instigated in part by two factors. The first is, because of ongoing economic strength and stubborn inflation the Fed began overtly tamping down expectations for any interest rate reductions this year. The effect on the markets was instantaneous. The second is that strong demand in the AI sector that had caused backlogs in order for chips and equipment, has abated along with unrealistic expectations for growth and earnings. Even though the backlogs have diminished, and prices are retreating, the sector remains very strong. AI has the capability to greatly enhance efficiencies in manufacturing, productivity, earnings, and to also increase jobs in nearly every facet of the economy.

Year End Summary 2023- Goldilocks Economy, Not too Hot, Not too Cold

In recent days, the stock markets have surpassed the previous all-time highs achieved in December of 2021. As the Fed increased short-term interest rates during 2022, the stock market likewise went straight south. It took all of 2023 to regain that lost ground. Now in 2024, the economy appears to be in a Goldilocks condition, not too hot and not too cold. Inflation has subsided to levels that will make the Fed’s target of 2% achievable within coming months. The labor market is as strong as can be with wages rising and unemployment less than 4% for two years running. The economy has not been this productive for 50 years. Help wanted signs are still everywhere. It is becoming apparent that even without new fiscal or monetary stimulus from either Congress or the Fed, as is likely, the previous trillion dollar covid stimulus money is still circulating and accommodating consumer demand that is more than enough to keep powering the economy forward for some time to come.