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"I've been through some terrible things in my life, some of which actually happened.”

— Mark Twain (attributed)

Friday worry-free charts

President Trump promised us a wall and now he’s building it: A wall of worry for the stock market.

The Economist opined this week that the president’s reciprocal tariffs will cause “chaos for global trade” and that his escalating rhetoric on Ukraine has caused Europe to have “its bleakest week since the fall of the Iron Curtain.”

North America isn’t faring much better, with US-Canada relations so deteriorated we can hardly get a hockey match going for all the fighting — three fights in the first nine seconds!  

Equities, however, still managed to have a pretty good week, with the S&P 500 hovering just below its all time highs.

I can see why.

It’s commonly said that markets hate uncertainty, but I'd argue the opposite: Markets rarely go up unless investors have something to feel uncertain about.

President Trump clearly wants markets to go up, so maybe it makes sense that he’d give them something to worry about?

It might even work: Threatening bad things and then not doing them could be the easiest way a president might get stocks to go higher.

Because not doing something, you may have noticed, is much easier than doing something — especially if your goal is to move the $60 trillion dollar stock market.

Why bother doing something good, but hard (like balancing the budget, say), when you can just promise to do something bad (like tariffs) and then not do it?

I take the president mostly at his word that he really does intend to do tariffs, but lots of people don’t — so much so that markets seem not at all worried about it.

Can the market climb a wall that no one’s worried about?

I think it’s possible — mostly because President Trump’s steady drumbeat of attention-grabbing headlines is distracting us from all of the amazing things that are happening. 

Just this week, Meta announced a new “brain to text” device; a US startup started taking pre-orders for a flying car; Apple released a $599 iPhone; Huawei announced a $3,600 “tri-folding” phone; I learned about a zero-electricity restaurant in India; and Microsoft discovered a “new state of matter.”  

In a podcast with Dwarkesh Patel this week, Satya Nadella called Microsoft’s discovery of a  “topological superconductor” a “transitor moment of quantum computing,” which sounds significant. 

He also told Patel he believes 10% GDP growth is possible and that AGI will be good for humans.

If he’s got that even half right, it’ll eventually become apparent that we’ve all been worrying about the downside too much and about the upside not enough.

But that’s exactly what makes markets go up.

Let’s check the charts.

Replace your appliances now:

Political blogger Kevin Drum finds that President Trump’s 2018 tariffs raised the price of washing machines by a whopping 54%. “Now multiply that by everything and you'll get a sense of what Trump's latest tariffs are going to do to us,” he warns (perhaps not without bias).

What are the odds, though?

Analysts at Goldman Sachs think there’s a 70% probability the US will impose substantial tariffs on select China imports, autos from the EU, and “critical imports” generally. They assign only a 35% probability of additional tariffs being imposed on all imports. 

Has it been five years already?

The Daily Chartbook’s chart of the day notes that this week was the five-year anniversary of the pre-Covid market high. The S&P 500 is up 80% in that time, having made 149 new highs along the way.

The real risk-free asset?

Isabelnet cites data showing that buying at all-time highs has been a winning strategy: “Since 1957, [the S&P 500] has gained a median of 8.3% in the following 12 months, with positive returns 71% of the time.” It’s always easier to buy the highs than it is to buy the lows, so I find that reassuring.

Flight to less safety: 

Bond investors are being rewarded for not worrying: Junk bonds (purple) have outperformed investment-grade bonds (orange) by over five percentage points in recent months.

Two horsemen of the Apocalypse? 

The only real evidence that the market is worried about anything at all is perhaps gold (orange) making yet another all-time high and five-year inflation expectations (purple) breaking above the recent range.

Assuming the best?

If positioning in growth and tech stocks is any guide, Deutsche Bank data suggests that inventors have rarely been less worried than they are right now.

CEOs are more confident:

In the mind of US CEOs, the promise of deregulation appears to still be outweighing the threat of tariffs.

Employees, too?

An ADP survey found that “employee motivation” hit an all-time high in February, led by harder-working employees in the information sector (who are feeling the competition from robots, I guess?). 

Be careful out there:

The CDC’s flu map will tell you how worried you should be about getting the flu. (Probably very).  

The market, by contrast, has so far avoided catching so much as a cold.

But it feels like we’re about to go through some things (to paraphrase Twain).

Some of which might even happen.

Let’s hope not too many.

Have a great weekend, worry-free readers.

— Byron Gilliam

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