This statement we made last month is more relevant today than it was in February: Oil is a foundational commodity for the world economy. No other product’s basic material matters more. It impacts commercial and consumer transportation. When it really gets moving, there is a trickle-down effect on the prices of nearly every good.

Chart of the Week

I ask for your understanding as I dive into the financial impact of war. This is always a difficult part of my work. Like Warren Buffett, our stance is to stay focused on our investment process.

Oil moved up in dramatic fashion when the United States attacked Iran near the end of February. The rest of the investment world has been surprisingly calm. Recent U.S. mini‑wars, Iran (2025) and Venezuela (2026), were so quick that the average American experienced little disruption. Investors assume the current conflict will be the same.

This war is different because it has escalated to the critical point of halting oil shipments from flowing freely through the Strait of Hormuz. If Iran controls it, the message is simple: the U.S. can’t impose outcomes anymore. The reason won’t matter—politics, casualties, lack of military capability, or companies’ failure to obtain insurance for their shipments.

Iran may be willing to drag the conflict out, raising the pain, betting that Americans will have a low tolerance for a drawn-out war. Everyone loses in this scenario. A months-long closure of the Strait would be unthinkable for the global economy, including Iran’s. Both sides should be eager for at least a pause, if not a longer-term peace deal, especially if each can claim some form of victory.

Economic Update

The deeper issues in the market go beyond geopolitics. Financial markets demand liquidity to finance new ventures and refinance existing ones. The U.S. Job market has slowed down in recent months, and negative revisions continue to plague these reports. Finally, the economy is slowing as low-income consumers struggle, while strong profit margins continue to fight the gravity of the stock market. Housing prices also look vulnerable. They have peaked in many areas of the country and look weak in many others.

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Oil is a foundational commodity for the world economy. No other product’s basic material matters more. It impacts commercial and consumer transportation. When it really gets moving, there is a trickle-down effect on the prices of nearly every good.

Chart of the Week

An increase in the price of oil acts like a tax on the entire U.S. economy, choking off discretionary spending, as well as freezing the Federal Reserve with inflationary fears. That’s why a jump in the cost of energy has preceded many recessions. We are not currently seeing this spike, and yet, there are some signs of a slowing economy. Could we see an alternative surprise, or black swan, that halts current growth, as the housing market did just before the 2008 recession?

Economic Update

The Federal Reserve is tasked with fighting inflation. It has set a target of 2%, despite being far above that level for 4 years. The impact of this inflation builds over time, as shown in the cumulative price changes.

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The United States surgically removed the Venezuelan dictator in the night and has taken control of that country’s oil. Citizens are engaged in mass protests in Iran. The U.S. President is pressuring the Federal Reserve with lawsuits if they do not lower interest rates. And the stock market has been relatively calm, so far.

Chart of the Week

January has historically been a good predictor for the entire year. If the first week is positive, then the month is usually positive. If the month is positive, then the year is likely to be positive. But what does it mean when two of the largest companies, that have been leading markets higher for years, fail to join that party? Welcome to 2026!

NVIDIA and Apple, the two largest American companies when we entered the year, are surprisingly negative in 2026. This rotation of leadership has been an opportunity. Since October 29^th, through January 12^th, the following sectors have outperformed the S&P 500: Basic Materials, Financials, Energy, Industrials, Consumer Staples, and Consumer Discretionary. Diversification into small company and international investments also did better in aggregate over the same time.

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Leading economic indicators continue to diverge from the current economy, and they are now so extreme that something is going to give. No one knows exactly when, so having a good investment strategy makes all the difference.

SFS ProActive Portfolios received their first buy signals in months, just as the stock market closed on November 20th. Opportunity knocked only briefly, and we acted quickly. Then that door closed. It never really opened that wide. We are now holding for the next opportunity. In the meantime, I cannot emphasize enough that Americans need to get their financial houses in order because next year will be very different from 2025.

Chart of the Week

Those who understand interest receive it; those who do not, pay it. This adage does not bode well for my home state of Utah. As the Federal Reserve has lowered interest rates and printed money since 2020 (purchased assets), it has inflated prices across the board. Those who have assets have felt okay about the direction things have been going. Those who invest less have only experienced rising prices as an expense.

Economic Update

Consumer spending has been up over the last six years, big time! That red line in the adjacent graph exploded higher. Adjust spending for inflation, and it looks about the same as it has for the last 15 years. Inflation is powerful and stealthy.

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Few phrases are more dangerous to investors than: “This time is different.” It’s a seductive phrase, fueled by optimism and sometimes fear. You may get lucky, but extreme emotion often leads to poor investment decisions. While every market event, every government shutdown, every trade war, and every housing bubble is unique, history always offers valuable lessons.

Chart of the Week

The most significant difference in the 2020s has been the U.S. government’s willingness to print money. The government began pumping liquidity (dollars) into the financial system in 2008 to stem the crisis. There was a public outcry at the time from the Occupy Wall Street and Tea Party movements. The government just kept going. It bumped up deficit spending in 2018. Pumped record liquidity again in 2020. And while the Federal Reserve has slowly tapped its brakes since 2022, the Federal Government has been driving with its foot on the accelerator.

Each bar in the adjacent chart represents the government deficit for a specific fiscal year. For example, in 2023, the U.S. government spent $1,695,000,000 more than it brought in through taxes and other revenue. That amount represented a 23% increase in the deficit compared to 2022. Each year, the amount of these deficits is added to the national debt, which is approaching $40 trillion.

One result of the extensive money printing (both digital and paper) has been the decline of the U.S. dollar. In contrast, a positive aspect for investors is that most other major assets have appreciated in the last year. The stock market has been rising. The bond market has gone up. Even gold, which generates no cash flow and pays no dividends, is at a record high. These could be getting tired by now, so caution is always warranted, but when the government prints money, that money circulates until it finds a home. So, keeping an eye on deficit spending is a good idea for investors. Speaking of homes, this is one place showing some cracks in 2025.

Housing Update

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Government shutdowns are not good for the economy, no question. They are an emotional rollercoaster with fast dips and sudden turns. While some will exit with just whiplash, others will be hurt. It is my job to consider the impact on investors. Here is my advice: “Keep your arms and hands inside the ride at all times.” The shutdown has begun.

Chart of the Week

According to Bloomberg, shutdowns and partial shutdowns have occurred in 2018, 2013, 1995, 1990, and 1987 (See graphic). President Trump was part of one that began on December 22, 2018. Like those before him, he attempted to shift public blame to the other party. The other party tried to do the same to him. Typical. The same is being done in 2025. It is only relevant to the article as it could impact how willing each side is to negotiate. Political parties are likely to lower their demands if they feel they are losing the political battle.

Only federal employees who are essential, such as prison guards and TSA workers, will continue to perform their jobs. When the shutdown ends, everyone receives back pay, even those who did not have to work. Social Security, Medicare, and Medicaid continue, as does the IRS. Consumer spending shifts, especially around federal buildings, but it continues, as does the entire economy.

When the government shutdown occurred in 2013, I wrote about it. Then, the S&P 500 moved up over 4% in the 2.5 months prior, then gave back most of those gains in the two weeks centered around the start of the shutdown. Then it bounced. The total S&P 500 return during the shutdown was approximately 3%. Bonds were steady, and gold was down some. I consider that a muted response, considering that the government sent 850,000 federal workers home for 16 days.

What about the shutdown that began on December 21, 2018, that lasted twice as long (35 days)? The S&P 500 lost 17% in the months leading up to the shutdown and reached its bottom on the first business day after the shutdown. Over the 35 days, the index gained 10% and returned to new highs by the end of April.

Our current situation looks different than either of these. We are in the middle of a 1999-like explosion in data-center spending. The market has not had a meaningful drop since March. And the government has the money printers figuratively running at maximum speed. Those who make the “rational decision” to stop investing may not do as well as they expect. Shutdowns happen, and history suggests it is usually better to stick with your long-term plan.

Making sound decisions and sticking with them over the long haul is the cornerstone of investment success. The mission of SFS MarketPoint® is to deliver weekly insights into the economic landscape and spotlight emerging opportunities for investors. Our proprietary system identifies sector and asset class rotations within the markets.

Two major companies just gave us two very different views of America. Who is right?
“We don’t see any signs of stress in U.S. consumers.”
—Barclays Bank, September 8, 2025

“Middle- and lower-income consumers, they're under a lot of pressure.”
—McDonald’s, September 2, 2025

Chart of the Week

Barclays is looking at the economy from 30,000 feet. They see strong spending, stable credit, and a stock market near all-time highs. From that vantage point, things look fine. But McDonald’s is on the ground, and what they see is troubling: a sharp drop in traffic for middle- and lower-income customers.

Since 2014, the Consumer Price Index (CPI) has risen by 31%. But McDonald’s prices have surged far beyond that, up 100%. That’s not just inflation. That’s a shift in affordability hitting some of the most popular American restaurants.

McDonald’s CEO didn’t sugarcoat it. He said plainly: upper-income Americans—those earning over $100,000—are doing well. They’re traveling, investing, and spending. But middle- and lower-income families are under pressure. Some are skipping breakfast. Others are eating at home, not by choice, but by necessity.

This is a tale of two consumers.

Economic Update

The stock market exploded higher on Friday, September 5th, when the U.S. Bureau of Labor announced the country added just 22,000 jobs—far below the expected 75,000. Investors found hope in the weak report that the Federal Reserve would cut interest rates.

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Homes have always felt expensive. They have never cost more than they do today. Comparing historical prices with average incomes offers further evidence. They are nearly unaffordable for the average American. And while falling interest rates have been helpful, they may not be enough. Change is coming.

Chart of the Week

Like everything in economics, the price of homes is determined by supply and demand. Currently, supply is up, and demand is down. This may not be a disaster for everyone. It will help resolve a situation we have been locked in for several years.

How will it happen? It already began in the cities most inflated with high prices and massive new supply.

Supply is up. Demand has not risen with it. Economics teaches us that prices should change. That may take time, and it will likely spread from overpriced epicenters. How concerned should we be? Are we in a housing bubble like in 2007? I don’t believe so.

There is a saying about bubbles. It is not the price level that matters. It is the financing. The leverage in real estate is not nearly as problematic as in the past, and it is nothing like the years 2006-2008. Total debt payments as a percentage of income appear reasonable. I expect a more reasonable repricing of American homes in the coming years. Even a small reduction in prices could be devastating for some. If you or anyone you know is struggling to make their debt payments now, it's better to get things in order just in case.

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Summer brought another sizzling stock market, inspired by steady economic growth, consumer inflation, and corporate earnings. The scenario could be defined as Goldilocks, not too hot or too cold, and at some point, something will change.

Chart of the Week

Inflation is on the rise, and corporations are shouldering a significant portion of the cost. Last week, we learned that producer prices rose 3.3% in July (2.5% was expected), and the core prices within it were up 3.7% (2.9% expected). We also learned that consumer prices are rising at 2.7% (see graphic), but not as fast as the producer prices.

This differs from 2021/2022 when excess cash led to high demand, which pushed up consumer prices. Our current situation has little to do with demand and is more likely the impact of tariff taxes. Corporations appear to be paying a big portion. That would explain why producer prices (PPI) are up more than consumer prices (CPI).

As consumers, we want to see corporations pay. As investors, we should like corporate profits. The status quo may mean lower corporate profits in the next 12 months. Why are corporations absorbing much of the higher expenses?

1. Corporations are feeling generous towards consumers (very unlikely).

2. Corporations fear negative publicity associated with higher inflation (partially true).

3. Corporations will eventually pass higher expenses on to consumers (just a matter of time).

4. Corporations see weak consumer demand and do not think they can raise prices (possibly).

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An era of fiscal dominance began in 2009 and intensified in 2020. Once a country leans heavily on stimulus, pulling back becomes politically and economically painful. Austerity sounds responsible—but often backfires. The better path is growth. Data in the last week has called our current growth rate into question.

Chart of the Week

One of the most telling indicators is M2—the broad measure of U.S. money supply. In June, it rose 4.5% year-over-year, hitting a record $22.02 trillion. That’s 20 straight months of increases, and the most significant jump since mid-2022.

This growth reflects how the game is played now: fiscal policy and financial markets are deeply intertwined. The government is still printing and spending, and that liquidity is flowing somewhere.

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“We don’t have to be smarter than the rest. We have to be more disciplined than the rest.”
- Warren Buffett

This is an important week for government policy: the European trade agreement, the U.S. government’s quarterly funding announcement, and the Federal Reserve will make its latest change (or no change) to interest rates. All that by this afternoon! Most investors are hoping these will pour gasoline on the economic fire. We will have to wait to find out.

Chart of the Week

What happens if the Federal Reserve cuts its overnight interest rate this afternoon? Last year, the Fed cut rates by 1%. The ten-year rate went up, not down. Mortgage rates and auto loans mostly increased. When the Fed implements policies that most investors agree with, the bond market tends to move in line with the Fed. If investors dislike the central bank's decisions, rates will likely move in the opposite direction.

Europe has its own central bank, the ECB. It has lowered rates this year. Investor response was similar to that in the United States in 2024. Interest rates moved higher in Europe. What is the impact? The short-term rates have an indirect and gradual impact on us as consumers. The intermediate and long-term rates have a direct and more immediate impact on our finances. They are quickly manifested in the rates available to Americans when we borrow.

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“Invest for the long haul. Don’t get too greedy and don’t get too scared.”
- Shelby M.C. Davis

Record highs in the S&P 500 have come as investors shrug off tariff chaos and higher inflation. The current beliefs that I hear are that (1) the White House will change its mind on tariffs and (2) artificial intelligence will solve all our problems. My belief is that investors are feeling good about recent gains and want more. It tells us little about what is coming.

Chart of the Week

Please do not misunderstand. I am grateful to have the S&P 500 up for the year. I thought it looked attractive in March and early April. The economy has changed little since then. Stocks have changed a lot. Anything can happen, and we don't know what's coming. We do not know where we are in this chart or even if the next drop will be as big as is implied by this graphic. It probably will not.

What we do know is that stocks have risen in the long term. Whether we are near a short-term top or destined to keep going higher, sticking with our system is the smart strategy.

I have learned that buying is much better than selling after stocks drop. Nearly everyone has embraced the idea to the point that drops have become rare. I have seen this form of complacency before, and it is a good time to remember that looking at historical norms and probabilities is important. This is why we are managing our risk in the SFS ProActive Portfolios.

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Ocean tides rise and fall in a predictable manner based on the gravitational pull of the Moon, the Earth’s rotation, and the inertia of the tide itself. There are some similarities for investors. The stock market has been surging higher since it bottomed early on Monday, April 7th. It has been a historic recovery, driven by the perception that the tariff trade war is over, and that every actual war will not have long-term consequences. Or was the driving factor just investor flows?

Chart of the Week

This is the CNN Fear & Greed index in early April on the left and early July on the right. Investor sentiment and positioning were defensive at the bottom. And then it all flowed back the other way like the tides of the oceans. I do not trade based on this measurement. I have not found it to be a robust signal. I do find it helpful to understand what is happening.

Over the weekend, we learned that positioning by the National Association of Active Investment Managers was at its highest level in 15 months. What does this mean for investors? The tide is high.

The stock market is not a magical money-making machine. It is an opportunity to invest in companies and participate in their potential. We have chosen to manage risks for our clients by holding dividend-paying stocks again. We bought relatively low in the energy sector this year, and we diversified into some precious metal companies. I would love to buy more stocks if my signals give us the green light. We are far from that now. We positioned our ProActive Portfolios for summer volatility, should it occur, and we feel comfortable with the allocation if the markets continue to climb.

Market Update

The drop in the stock market on Monday was no surprise. Few things go straight in any direction. Stocks are no exception. What was the reason for the initial drop? The tariff war is not over. In fact, all these trade deals that we have been promised over the last few months have not yet materialized.

Many goods seem to be skirting the rules by visiting other nations along their journey from China to the United States. According to the Financial Times, trade from China to Vietnam, Indonesia, Taiwan, and a handful of other nations is up significantly. It is no coincidence that trade from those countries to the United States also rose. Some U.S. semiconductors, banned from being sold to China, are circumventing sanctions using similar logistical tactics.

President Trump seems bothered. He has raised tariffs again in recent days on Canada, Vietnam, South Korea, Japan, and several other Asian countries.

This is forcing investors to acknowledge the obvious fact that there is uncertainty. We do not know how high the effective tariff rates will be. They are tax hikes. We still do not know who is paying them. Corporations or consumers. Probably both. We have also not seen an increase in the rate of inflation due to tariffs.

Economic Conditions

I spoke with a first-time homebuyer last week who lamented the high mortgage rates and is anxiously hoping for interest rates to come down. Rates have not come down. The long-term rates that mortgages tend to follow have been bouncing around similar levels for almost two years. When the Federal Reserve lowered its ultra-short-term rate last year, long-term rates rose significantly. The Fed seemed to ignore it but has now placed itself on pause.

The Fed expects inflation to increase in July due to tariffs. Its members have refused to lower interest rates, taking a wait-and-see approach. The White House is furious about this approach, threatening to stop issuing any new debt that is longer in duration than 9 months (the remaining time for Fed Chair Jerome Powell's appointment). This is coming at a time when the United States has $37 trillion in debt and is growing—growing at the fastest rate since 2008, despite not being in a recession. This is probably how we have avoided recession in recent years.

Market Momentum

Inflation appears calm on the surface. We have all witnessed the compounding pain it can cause. Over the long term, the impact is shocking. The increase in the supply of money by the U.S. government is one of the biggest causes. As we approach $40 trillion in government debt, the dollar is getting even less attractive to foreign investors. It is down 10% in value so far this year. Just like stocks and bonds, this can fluctuate based on extreme positioning. I do not recommend trading based on the currency. However, it is worth watching.

Making sound decisions and sticking with them over the long haul is the cornerstone of investment success. The mission of SFS MarketPoint® is to deliver weekly insights into the economic landscape and spotlight emerging opportunities for investors. Our proprietary system identifies sector and asset class rotations within the markets.

Neodymium has never come up at one of my family barbeques. Until recently, I did not even know how to pronounce Ytterbium. Yet, the need for these and other rare earth metals has become so serious that U.S. auto manufacturers are warning of vehicle shortages, and two of the most powerful men in the world are rushing to make a deal for these elements. Experience has taught me repeatedly that some type of solution is likely. As investors, we must consider what impact it may have.

Chart of the Week

In school, many of us memorized the periodic table. I even remember a little song that went like this, “Who told the elements where to go? Mendelev!” Since then, I mostly think about elements that involve the air we breathe, supplements we consume, and metals used in manufacturing, all of which are found on the periodic table. Suddenly, these elements that seemed obscure and economically unimportant are central to the new economy and competing for media headlines.

Tariff-war headlines have transformed in the last week from TACO to rare earth metals. These metals are center stage, and our need for them forced the White House into making a deal with China. They are used to make essential components for our internet connections, smartphones, computers, cameras, vehicles, LED light bulbs, MRI machines, and military equipment.

The challenge for American companies is that China mines roughly 70% of the world's rare earth metals. Making things worse, 90% of the entire supply is refined in China. This will change. I think it is possible for the United States to increase its capacity, but it will take some time. The United States is currently only providing around 11% of the world's supply.

President Xi (China) and President Trump have different negotiation styles. Trump tries to shock others into making a deal. Xi prefers to work with those treating his country with respect. Fortunately, both seem eager to avoid economic catastrophe. All essential trade is likely to find a way to take place with stock market investors trading under this assumption right now.

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Little good news was not a problem. Major stock indices continued to grind higher last week. I interpret it as evidence of how offsides many investors have been over the last two months. Many missed out on the bounce and have been feeling anxious. Fortunately, that has not been us. No FOMO driving our decisions to buy and no FOMO in managing our risk today. Just discipline in our system.

Positioning is more neutral now. Data will matter more in June than it did in May. That data will be driven by federal spending. This is what has upset Elon Musk, America’s richest resident. He began a public feud with the President last week over what Musk views as excessive spending. The media chose to focus on the drama. I am more interested in the substance of the debate.

Chart of the Week

Elon Musk appears to be concerned about government debt. Does anyone want to join him? Anyone? Anyone? It’s not just the politicians. As this Gallup poll indicates, Americans do not seem to care much about the deficit. It has not always been this way.

After almost 200 years of worrying about the federal debt, the living generations have become numb to the issue. Deficit spending has historically increased in times of emergencies, such as war and recession. That debt diminished in good times. Things changed in the 1970s as deficit spending (the falling blue line) became more regular. After the year 2000, no serious attempt has been made to get the blue line up near zero.

The Trump administration claimed it would deliver -3% deficits. Negative is negative, but that number is roughly equal to economic growth, and for that reason, many thought it would be reasonable. Then came the “Big Beautiful Bill.” The administration has chosen to shift spending around without significant reductions to this deficit. They believe that economic growth will compensate for the difference. My thoughts? Throughout my career, every politician has hoped that growth would make up for the difference. The problem, in part, is the multiplier effect, which I wrote about in a recent SFS Money Moxie article. I do not expect politicians to present a real solution until Americans want a real solution. Until then, what should investors do?

More government debt for spending should be positive for stocks. Every deficit dollar spent is a corporate profit, and more interest is paid to savers in the coming years. There is no guarantee. This is one reason why I developed a rotational strategy for tactical portfolios. It does not rely on predicting good news, which sends stocks up, or bad news, which sends stocks down. My rotational strategy enables me to stay invested in the areas I believe should be overweighted in the coming months. As discussed last week, energy stocks looked more attractive than the broad market in my system. I waited long enough. I added more energy last Thursday.

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Wall Street loves its acronyms, like any other group of people. In the 2000s, there was a big focus on BRIC investing (Brazil, Russia, India, China). By 2010, a few friends were casually asking about it. In the 2010s, we had TINA (There Is No Alternative to staying invested). Every financial wholesaler seemed to mention it. The latest acronym currently making the news is the TACO trade. Whether we knew it or not, the TACO trade was having an impact on our investments.

Chart of the Week

Last week, President Trump was asked his opinion of Wall Street’s latest craze. The president needed an explanation before he could answer, as I am sure many of us do. TACO stands for Trump Always Chickens Out. The term originated from The Financial Times about a month ago, but the idea of buying dips has existed for millennia.

You can imagine the President was unhappy to learn about it. I think the President likes being able to move markets. He just doesn’t like the acronym. Who would? Trump responded with an explanation of his tactic: scare others into action. I am personally more interested in the implications for investors.

TACO trading does not sound like a reliable strategy to me. Who can predict tariff headlines in 2025 without insider information from the White House? In the last week, the following happened.

• Wednesday: U.S. trade court blocks all Trump tariffs, saying the President does not have this power

• Thursday: The Court of Appeals pauses the immediate end of tariffs

• Friday: Tariff negotiations with Europe are not productive. United States accuses China of breaking current trade agreement by withholding rare earth metals

• Saturday: China accuses the United States of breaking the trade agreement first by withholding semiconductors

• Sunday: White House officials state that the President will not delay tariffs again

• Monday: Trump delays hike of tariffs on Chinese goods until August

All of this happened within a week. And if you think following the news is difficult, imagine being in the business of imports and exports!

Where does this leave Americans? If I am not mistaken, we still have 35% tariffs on goods from China. There is a lot of confusion, so let’s look at the shipping data to get a better understanding.

This chart shows the change in goods imported into the United States month to month. It encompasses the entire world, not just China, and offers many valuable lessons.

1. Trade is still happening. If it were not, then the drop would have been -100%.

2. Changes from month to month are far more volatile than one might think.

3. The largest red bars (reductions in imports) have occurred during difficult economic times (1991, 2008, 2020, and 2025?).

4. Our current drop in imports is the largest in at least 35 years.

5. There is a thick, green area just prior to our current drop. Retailers saw tariffs coming and increased inventory.

6. The inventory should also have been locked in at the pre-tariff pricing.

7. These retailers did not receive enough inventory to insulate Americans from the effects of tariffs forever, and changes will gradually be reflected in prices.

Expect economic volatility this year in the form of GDP. GDP lags and gets revised repeatedly. More importantly, for today, imports show up as negative GDP. A decrease in imports raises our GDP. This means the economy likely shrank a little during the rush to import pre-tariff. The GDP measurement will likely spike higher as fewer goods get imported April-June. It demonstrates how arbitrary some measurements can be. If we want to know what is really happening in 2025 then we will have to look beyond headline GDP figures or focus on other information.

If we want to know what it means to investors, then we better have a system. My signals are designed to look for opportunities to buy low and sell high. It's not easy and it is not guaranteed. While I do not like the extreme volatility of 2025, it has been beneficial for my strategies.

I reported making many portfolio changes in my last commentary. I am happy with how things have gone and have made few adjustments. Let's dive in and review where the markets stand, how current recommendations are performing, what I'm watching closely now, and where I traded.

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Stocks are rising as if the trade war is over, and interest rates are climbing like the conflict has just begun. Economic crosswinds abound, but I am sticking with what I know: markets tend to rise over time, investors often overreact, and the media is slow to identify opportunities. These offer no guarantees, but they are incredibly helpful in a changing world. I made many changes to our tactical portfolios in the last week. Before going there, let’s discuss what happened last week.

Chart of the Week

Moody’s downgraded its rating on U.S. debt on Friday. The last two times something like this happened, stocks plummeted. But by Monday afternoon, the Moody downgrade was old news. The major indices were little changed. I draw two powerful conclusions from the downgrade dip and recovery.

(1) The U.S. fiscal situation is a mess, and politicians are relying on hope to fix it. They are hoping that they can grow the economy faster than debt goes up. I love the sound of that, but this has been the wish of every politician. As Milton Friedman said, "One of the great mistakes is to judge policies and programs by their intentions rather than by their results."

(2) It appears that too many investors sold stocks near the bottom and now want to get back in. To those buying back into the markets the last few days, my indicators say, "You should have stayed in." This short-term move looks tired.

The S&P 500 stock index has completed a recovery for the record books. It began with the worst start to a presidential term in modern history. Then, after losing roughly 20 percent in under 2 months, the index gained 20% in under 2 months.

Most investors do not enjoy volatility to this magnitude, but markets do not care much about what investors want. As investors, we get ready, and we react.

Over the last week, we have been preparing for changes. When Moody's downgraded its rating on U.S. debt on Friday afternoon, we did not panic. When markets reacted better than expected on Monday, we welcomed the response.

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It felt like markets only went down. Now, it feels like they only go up. Neither is true. Tariffs continue to drive media headlines and the stock market. Investors continue to buy with optimism, which we have not seen in many months. My signals are suddenly as exciting as they were in March and April, when they were screaming “buy.” Beginning today, May 13th, they are flashing warning signs.

Chart of the Week

Tariff news is challenging to track. There are so many changes to various categories. The narrative is much easier to feel: Tariffs were going up, and now they are coming down.

Tariffs on Chinese goods bumped to 10% in February and 20% in March. Stocks were in an absolute panic. For one month, U.S. tariffs on China trade were greater than 100%, which essentially shut down all direct trade between the two. President Trump had stated that his primary goal was to bring back manufacturing and lower interest rates. He panicked as stocks collapsed.

Tariffs are a form of tax that no one wants to pay. The current level of 30% (imports) seems reasonable compared to where we were. This explains the bullish attitude of investors. I cannot help but wonder if, at some point, we all realize that a 30% tax on our spending is not good. (Graphic provided by the Kobeissi Letter.)

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Retail investors are “all in” on the stock market despite recent volatility. We have all been conditioned to buy the dip over the last 16 years. However, there are real questions about the direction of the economy over the coming months. It is not just that the stuff Americans buy might cost more. There is a possibility that we will not even be able to find everything we want.

Chart of the Week

Barrons may be correct about new highs in the stock market coming soon. This would require a sudden announcement that a trade deal has been struck with what Treasury Secretary Scott Bessent calls the 18 most important U.S. trade partners. In the same interview on Tuesday, May 6th, Bessent let it slip that there have been no negotiation discussions with China; however, there was information after the market closed that officials from China and the United States would meet in Switzerland this weekend.

Regardless of the rhetoric coming from the two world superpowers, trade is declining fast. Imports from China have fallen by a staggering 50%. I am watching to see if other countries can pick up the slack. What I see is manufacturing slowing in Mexico, Brazil, and Vietnam while shipping is increasing out of South Korea and Taiwan (TheDailyShot).

Please go back and read last week’s MarketPoint for more information. Little has changed since then. American ports are unloading fewer ships from China.

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Wall Street reacted quickly in March and April to the potential economic fallout from the U.S. trade war with China. While the headlines have abated, uncertainty remains with us. The consequences for Americans are still coming. This situation reminds me of the news in February 2020. The life changes that were coming were difficult to foresee until they arrived. Estimating the timing of the tariff impact is not rocket science. I believe it will reach us in approximately two weeks.

Chart of the Week

Bloomberg Businessweek published this cover to explain the purpose of tariffs: Increase U.S. manufacturing. I am a fan of U.S. manufacturing, and global trade is good. No country has benefited more from globalization than the United States. The pendulum has swung, and our country is vulnerable to disruptions. The goal of the trade war is admirable from that perspective. The abrupt shift to tariffs as a solution has left the United States isolated on the world stage. That is a long-term problem. In the short term, the impact has been a great uncertainty.

It appears every organization is waiting. The Federal Reserve, which meets on Wednesday, is waiting to make changes to monetary policy. Corporations are waiting on capital projects. Importers are waiting on inventory. Who wants to pay a 150% tariff if it could come back down tomorrow, next week, or next month?

Economic Conditions

Global trade can be volatile and seasonal. This graph illustrates a February/March inventory build, followed by a steep April decline. While everyone is wondering about the inflationary impact of tariffs, this chart suggests the possibility of another scenario: fewer goods available. I am not an expert on global trade logistics, but it is time to take this seriously.

It takes a container ship roughly 2-3 weeks to reach a U.S. port and approximately 1-2 weeks before it reaches the shelves of a local store or your front porch. Based on this simple math, the decline in global trade that began in April should reach us by early May. We will see it when prices go up, or the shelves are not full of merchandise, or both.

As shipping slows, so could jobs in logistics: Port workers, truckers, and the restaurants and other businesses that support them. I have little reason to worry, but it is a real possibility in May.

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