Good morning. Markets are relatively flat in this morning’s session … but is it the calm before the storm … or is this an oft-warned-about tempest that will never arrive? There surely are storm clouds out there … as the OECD (Organisation for Economic Cooperation and Development) put out an opinion that tariffs “… will wreak greater economic damage than previously expected” and lead to higher inflation. And while the forecast is for global slowdown (not recession), U.S. growth rate … as a result of tariffs … is expected to trail the rest of the world. Investors are interested in both the economic story and … more importantly … how their portfolios might be affected … so here goes … As far as the economy is concerned there are signs that tariffs are having a negative effect so far. Daily Shot reports imports are slowing (at the fastest pace since the Great Financial Crisis) with cost pressures elevated … as ISM is reporting U.S. factory prices on the rise. But this coin has two sides … and Bloomberg reports that buyback announcements “surged” in the first quarter of the year and Deutsch Bank sees the S&P at 6550 the end of this year … which is around 10% above today’s level. What is really interesting about the plan for increased manufacturing in the U.S. is the reaction of the workforce (assuming automation doesn’t defeat the plan for a subsequent increase in jobs). BofA Global put out a note claiming the percentage of U.S. non-farm payroll positions that are manufacturing jobs is (sit down for this one) 8% … and this has been trending downward since the end of the second world war! Still, reshoring might not be easy … as even today job openings are greater than hirings (jobs are not filled) and with the increase in immigrant disassociation (a kind word), this labor shortage gap might well widen. Now, back to investments … as I am obviously quite wordy today and apologize … Sure, we are all focused on the high-flying tech stocks and many of us are probably overweighted there … but Daily Shot points out stocks of smaller companies (as measured by the S&P600) are quite “cheap” relative to their P/E (price/earnings ratio) looking back over the last 10 years. In addition, FactSet shows forward P/E ratios (projections looking over the next year) to be lower for non-U.S. securities compared to the U.S. … especially in the UK and Emerging Markets. So, while it is fine to be invested domestically, and especially in large cap tech (as AI remains exciting), it is probably wise to review your portfolio … and be prepared if these other areas decide it is time to enter the race. That about wraps it up for today as I have a lunch meeting with a friend who wants me to consider investing in a dry-cleaning business He tells me profits are certainly in creasing. Have a great day, Joseph G. Witthohn, CFA Have any questions? Please contact info@teamemerald.com
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