I’m taking off my hat as a human being and putting on my hat as a stock market analyst.
The killing of Renee Good in Minnesota and apparent plans to annex Greenland are the latest administration developments that seem to cut against the idea that the US is still the “shining city on a hill” or the “land of the free and the home of the brave.”
In fact, I was listening to a You Tube conversation earlier this morning between two historians, Heather Cox Richardson of Boston College and Joanne Freeman, a Yale professor who specializes in the revolutionary-era US. They agree that we’re seeing a replay of the Revolutionary era now, but with President Trump functioning as mad King George, and the current administration’s policies mirroring the grievances spelled out in the Declaration.
There are persistent suggestions that Mr. Trump has suffered a stroke that has left him physically and cognitively impaired. If so, the ship of state is being steered by the cabinet he has assembled, whose chief plusses, as far as I can tell, are fashionable wardrobes and extreme use of botox.
The chief underlying issue here, as I see it, is not the president or the cabinet. It’s the idea that Congress has so far chosen to turn a blind eye to every weird thing that emanates from the White House.
The rest of the world seems like it’s shifting gears, though:
–Canada, once our staunchest ally, is negotiating new trade agreements with China. And it has announced that it will stand with the rest of NATO if the US makes any attempt to seize Greenland from Denmark.
–Foreign direct investment into the US does continue to be substantially higher than into China. Over the past six months, however, the character of that investment has changed from high-tech money into the US vs. low-value-added manufacturing investment into China to the reverse.
The investment worry about Washington’s economic dysfunction is that it will result both in slowing earnings growth as well as in PE multiple contraction (to compensate for the higher risk of investing in a place where economic growth is seemingly not a priority). This worrying shift in perception appears to me to already be well underway:
–the Shanghai stock exchange equivalent of NASDAQ has more than doubled the latter’s gain over the past year,
–performance of US stocks overall has been deep in the bottom quartile of world markets since the inauguration
–the sharp decline in the world value of the dollar in 2025 is a factor driving the S&P’s poor relative performance. In my view that has been dwarfed by the negative effects of tariffs and by administration efforts to reduce the workforce
–2026 may be the year when the dollar takes center stage–and not in a good way. Foreign central banks are worrying that the administration wants to lower interest rates aggressively in order to reduce the cost of servicing Treasury borrowings. This tactic, out of the 1970s government playbook, resulted in the disastrous inflationary explosion of late in that decade–which took most of a decade and Treasuries at 20% to get back under control.
The result of all this has been that we saw last year for the first time in over a quarter-century the world’s professional equity investors shifting significantly away from the US stock market.
My sense is that so far professional investors have reacted mostly to slowing domestic earnings growth plus currency weakness. The next step, however, may well be that worries the current domestic economic situation is not going to get better any time soon will begin to express themselves through PE multiple contraction.