It’s going to be a big week for earnings, with 4 of the Mag7 and a few big corporations on the slate which will pair nicely with a heavy week of jobs related data.
We’ll start the week with the S&P 500 at 5,525. Over in fixed income land the 10Y is 4.24% and the 2Y is 3.77%. Where will these numbers be after Jobs Day Friday?
Long before tariffs hit the headlines, one of my key themes for 2025 was whether markets, or certain asset classes, were already in “bubble” territory. Remember back in January our conversation was about competing meta narratives, one being the proverb that “trees don’t grow to the sky” and the other, competing narrative that “this time is different” and there are increasingly companies that are not subject to laws of diminishing returns and earn increasing returns from scale.
Earnings ultimately matter and the risk of high valuations hasn’t been lost on the regulatory apparatus at the Fed. As Howard Marks warned in his January investment memo, “On Bubble Watch”, put it: "overpaying is the greatest investment risk".
Ahh, whatever. Who needs investment wisdom when you can just do what everyone else is doing and create a Bitcoin perpetual motion machine.
If You Don’t Know Now You Know
The Federal Reserve released their most recent Financial Stability Report on Friday, April 25th, and you’d never guess what they found, that the most frequently cited near-term risks to U.S. financial stability included risks to global trade, policy uncertainty, and U.S. fiscal debt sustainability. Novel, that’s why they pay those guys the big bucks I guess.
Setting the obvious aside, here are a couple of items that might have fallen out of the headlines with all the focus on trade:
high asset valuations coupled with hedge fund leverage that had been at or near all time highs, were certainly factors that probably didn’t help market volatility this month
Banks are still sitting on fair value losses on their fixed rate assets that are in the hundreds of billions
CRE has ~$1 trillion of loans maturing this year.
But Trade Still Rules The Day - And The Issue is Friction
Economist Allison Schrager had a piece last week which was subtitled ‘Revenge of the neoliberals’ discussed her opinion on the real problem of the globalization, economic deregulation, financialization, etc. that have come from “neoliberalism”, explaining:
“The real problem was the market frictions we imposed that made it hard for people to build, develop new economic projects, get a decent education, or just move. There were also many toxic social issues. Seeing these failures up close is why I became an economist—I wanted to find solutions. I did: better development of human capital, free markets, with a robust safety net. It’s not complicated.”
“Market frictions—even well-intentioned ones that try to freeze an economy in time or turn back the clock—only make things worse. Tariffs and industrial policy are just another form of friction. And frictions are always tempting in times of change that bring uncertainty—they slow things down. But it would sound absurd now to say we need to bring factory workers back to agriculture—yet people said the same thing 100 years ago. And that desire made the transition to industrialization messier than it needed to be, too.”
My summary is: You can't fix frictions by adding more frictions; the real solution is policies that boost productivity and enable economic flexibility.
What are the odds we’ll get more tariff headlines this week, my guess is pretty high.
The Week Ahead:
Monday: No major reports, I’d check on Shaduer Sanders
Tuesday: Conference Board Consumer Confidence, JOLTS, Coke and Visa earnings
Wednesday: 1Q2025 GDP (1st), PCE, ADP, MSFT and META
Thursday: ISM Mfg and Construction Spending, Jobless Claims, AMZN and AAPL
Friday: Jobs Day in ‘merica, Berkshire Hathaway
XTODs:
XTOD: Warren Buffett: "I think people's investment would be more intelligent if stocks were quoted about once a year."
XTOD: In #investing, you get what you don't pay for. Costs matter. So intelligent investors will use low-cost index funds to build a diversified portfolio of stocks and bonds, and they will stay the course. ~John C. Bogle
XTOD: “Let me never fall into the vulgar mistake of dreaming that I am persecuted whenever I am contradicted.” — Ralph Waldo Emerson
https://x.com/kejca/status/1915839912479277250
https://x.com/bogleheads/status/1915828508078604602
https://x.com/tferriss/status/1916497384198013123
No comments:
Post a Comment