This is arguably what the S&P 500 has been doing since the April 8 lows. So far in calendar 2025, that index is ahead by a bit less than 4%. But since 4/8, the rise has been about +20%. If we look at EAFE–the most commonly used index for developed world markets outside the US–which is ahead, in dollars, by about 16% ytd, its rise in dollars since the April lows is about the same +20%. A third of that return comes from the continuing weakness of the dollar, so a local currency chart may not seem as impressive.
All in all, the point I take is that although I don’t feel great about near-term prospects for the US economy as we await the negative impact of Trump tariffs on real growth and inflation, the upward bounce since April has been a significant positive statement.
What I worry about:
–the most obvious issue is tariffs. Microeconomic theory (and also reality, I think) says that the cost of this form of taxation will be shared among all parties in the distribution chain–foreign producers, importers, domestic sellers and domestic customers–according to their relative market power, with the weakest parties bearing the greatest burden.
Another micro truism (“the iron law of microeconomics” as my micro professor used to put it) is that what determines price is the availability of substitutes. In ordinary language, this means that people will deal with the tax on spending through some combination of trading down and doing without–i.e., postponing purchases. In theory, and, I think, also in practice, the tax will disproportionately hurt middle- and lower-income families. Hence, the big rally in dollar stores. Maybe I’ll keep my current Kia for another year, or trade down to a BYD electric vehicle–assuming Musk won’t be able to keep them out of the US. Disneyworld is probably out for a while…
Lots to figure out.
–the Trump administration. Arguably, politics typically makes no difference for stocks. This case may be somewhat different, though. It’s not just the weird posts on Truth Social that seem to be screaming out apparent cognitive decline. It’s also that much of the staff Trump has assembled appears to me to have been selected more as potential performers in a reality show than the best and brightest giving sage advice to the chief executive of the country. Of course, the gestapo-esque seizure and imprisonment of random workers by masked ICE operatives won’t exactly encourage tourism, or honor the idea that we’re the land of the free. And the resulting shrinkage of the workforce will retard GDP growth. Also, the attack on research universities isn’t exactly a winning move in a world where brainpower is more important than brawn.
–the dollar vs. the stock market. So far the bad news of the second Trump administration has been taken out in the sharp fall in the value of the US dollar rather than a decline in the major indices. Actually, from a Wall Street point of view, companies with costs in dollars and revenues in foreign currencies are substantial beneficiaries of the hot mess of the administration in Washington. The big question here, though, is whether the currency will remain the sole expression of government dysfunction or whether stocks will also begin to be stigmatized. My guess is that the latter will become more evident as tariffs begin to hit the domestic consumer.