February Market Recap
Both stock and bond markets reacted tariff threats as well as DOGE’s well-publicized efforts to cut government waste. The 10-year Treasury yield settled around 4.3%, while the tech-heavy Nasdaq and small-cap stocks were down substantially.
Investors can expect volatility to continue as long as news headlines on unpredictable and unorthodox policy announcements keep flowing from the White House. However, the US economy has proven to be resilient. As long as consumers feel confident and keep their wallets open, the market will get back on track.
Tariffs: What They Are and How They Affect the Global Economy
President Trump’s tariffs have targeted both friends and foes – ranging from 25% on imports from close allies to 10% on distant frenemies.
In short, tariffs are a form of tax, much like sales tax, which is based on the value of the goods foreign companies sell (export) to the US. For example, if a $20,000 automobile manufactured in Canada is destined for the US market, a 25% tariff (tax) will increase its price tag to $25,000, making it less attractive to American consumers.
Additionally, the longer tariffs stay in place, the more harm is done not just to the exporting countries, but the US as well. That’s because retaliatory measures imposed by trade partners will make domestically produced goods more expensive to sell (export) to other countries. The POTUS has also vouched to levy corresponding “reciprocal” tariffs, which will prolong the vicious cycle.
If the tariffs are merely negotiation tactics to get better deals for the US, we should not see a negative impact on the economy. However, should they eventually stay in place for extended periods of time, tariffs can have a negative impact on corporate earnings, accelerate inflation as companies pass on the added costs to consumers, and put a dent in global commerce.
Alternative Investments - Private Equity
Companies that trade on a stock exchange such as NYSE or Nasdaq are known as public companies. Any member of the general public can buy or sell them at any time.
However, 9 out of 10 companies globally are privately held, from your friendly neighborhood dry cleaner to some of the best-known brands in the world, like the maker of Windex and Ziploc, SC Johnson. Private equity represents a universe of investing opportunities that may appeal to more adventurous investors or those looking to further diversify their portfolios.
Until recently, private equity was almost exclusively available to the ultra-wealthy and institutional investors such as college endowments. Nowadays, many retail investors meeting certain net-worth requirements have access via private placement through an investment company or even through a traditional mutual fund.
Much like real estate, private equity pricing is less volatile than that of public companies since it is not traded on the exchanges. Some private equity provides attractive cash flow and presents exciting opportunities in cutting-edge and emerging technologies that are not available in the public market. Be sure to have a thorough understanding of the investment strategy, cost structure and other factors pertinent to your situation before making a decision.
Consumer Temperature Check: A Tale of Two Worlds
A recent Wall Street Journal1 report indicates a couple of interesting trends:
1. The top 10% earners (those making over $250,000 a year) accounted for over half of all consumption.
2. Inflation, albeit sticky, has not affected this group of consumers. In fact, these consumers emphasize value, experience and quality over costs. They are not shy of paying up if the perceived value is worth the extras.
The picture looks very different for the bottom segment of earners, who have struggled since 2024. Stock prices have reflected these bifurcated trajectories (see chart below).
One of the factors that fuels discretionary spending is the swelling of net worth, particularly in the form of home equity, stock portfolio, retirement savings and wage increases. All of these lead to higher confidence in the economy as well as financial security.
