adriant

adriant

  • Joined: December 24, 2025
  • Articles: 488

Powell’s Limited Options

Not for the first time, the Fed is in a very difficult spot. Whilst always a dominant force in global markets, for now, Powell's team is not in the front seat. We learned this week the direction of U.S. monetary policy (over the coming months) depends heavily on developments well beyond the Fed's control. And unfortunately for investors - it could be a long (US) summer. In its latest decision, the Fed held rates steady, as expected, citing strong economic activity, low unemployment, and persistent—but slightly elevated—inflation.

Patience Alone Doesn’t Get it Done

Over the past ~40+ years - the S&P 500 Index has returned an average of ~9.3% annually exc. dividends (i.e., 171.6 Jan 1985 to 5,979.5 Jan 2025). If we limit that to the past decade (from 2015) - that avg annual return increases to 11.4% (excluding dividends). But what matters most is (a) the price you pay; and (b) when you get out. Sitting tight for 10 years does not guarantee a 10% return...

Breaking Up is Hard to Do

Breaking up is always hard to do. Your dog looks at you dazed and confused... your Netflix account is no longer shared. And who gets the air fryer? The whirlwind bromance between Elon Musk and Donald Trump appears to be over. It's not a clash of gigantic egos. And like most breakups - things seemed to have moved to the second of five (breakup) phases.. anger

Don’t Choke On Your TACOs

The market is betting Trump is all bluster and no action. The acronym "Trump Always Chickens Out" (TACO) is sure to piss the President off. Now, if the TACO trade is right, then Trump's threats will lose their power as a negotiating tactic. Therefore, on the assumption Trump believes in protectionism - he may have to follow through on some of his rhetoric. Markets seem to think that won't happen...

Economic Growth Slows

If we needed confirmation that economic growth is slowing - today we got it. The US economy shrank at the start of the year, restrained by weaker consumer spending and an even bigger impact from trade. Gross domestic product (GDP) decreased at a 0.2% annualized pace in the first quarter. And there were also warning signs from the labor market...

Borrowing Costs Are Going Up

Can the stock market significantly advance with bond yields going higher? That's what investors are trying to gauge. As governments around the world look increase their (already high) levels of borrowing and spending -- it's plausible bond yields are set to rise further. And it's not hard to explain why... demand is falling as supply increases. But at what point does the stock market say enough?

Bond Vigilantes To Have the Final Vote

Markets paused to take a breath this week following a six-week ~22% surge. The S&P 500 surrendered a routine ~2.80% - after touching a 12-week high of 5,968. With the market trading at 22x fwd earnings (a premium in any environment) - investors are arguably more mindful of (a) ongoing tariff risks- with new threats from Trump on Europe and Apple; and (b) the thread of rising bond yields - and any potentially widening of the deficit.

Why Earnings Expectations Feel Too High

Factset reported S&P 500 companies are "highly uncertain" for the balance of this year. This is well above the 10-year average of 179; and more than double the previous quarter. And it makes sense... it's impossible to know what impact tariffs could have over the coming two to three quarters (or more). But what's almost certain - any impact won't be positive. We can say with certainty that tariffs (even if only 10%) are an economic burden - where I estimate the cost to both companies and consumers to be more than $300B. So who will pick up the tab?

Brand USA Downgraded

The stock market has risen at a dizzying speed the past six weeks - up over 20%. I would reduce risk at these levels. We're now back at valuations similar to the beginning of the year - however the risks are now considerably higher. But let's say the net result is a tariff rate in the realm of between 10% and 30% - that would be disastrous. My back-of-the-envelope math estimates a substantial $300B "economic burden" that both companies and consumers will be forced to bear.

Equity Risk Premium Isn’t There

The S&P continues its impressive six week rally - up over 22% from its early April low of 4,835. At 5,916 - this represents a forward price to earnings (PE) ratio of ~22x - with earnings per share (EPS) expected to be ~ $270 this year. If we take the inverse of 22x - that gives us the market's earnings yield; i.e., 4.56%. The question whether 4.56% represents a good risk/reward? There's an easy way to answer that... let's explore.