Portfolio Strategists Jack Janasiewicz, CFA® and Garrett Melson, CFA® specialize in analyzing global capital market trends, identifying themes and risks, and applying those observations to asset allocation and portfolio construction. Each month they highlight five key macro trends to watch in Charts and Smarts®.
Sharp-dressed man: Artificial intelligence spending fears, momentum and beta unwinds, broad derisking, and potential retaliation have been a perfect storm for massive derating of mega-cap tech. While trade concerns remain unresolved, the Magnificent 7 are no longer expensive and are arguably more accurately reflecting the dimmer outlook than what fellow sectors and industries are pricing.
Got me under pressure: Prices lead earnings. And that’s particularly the case given the speed of the derating and source of risk. All eyes will be on management teams as we embark on the Q1 earnings season, but don’t expect much in the way of guidance from management teams that have little visibility themselves into the outlook. No wonder earnings estimates have yet to move. Fortunately, prices at current levels are already at some degree of earnings impairment. The question is just how much more do we need to price.
Just got paid: Reciprocal is hardly the term that accurately reflects the level of tariffs originally applied to our trading partners on “Liberation Day.” Antagonistic would be a better term, given the now infamous formula used to calculate those punitive rates. While the incremental reciprocal rates may now be on pause, the 10% universal rate remains in effect while tariff rates on China effectively make tariffs noneconomical. The pause is a welcome reprieve, but we’re still left with an organically cooling economy with persistent uncertainty and incremental tariff headwinds.
Cheap sunglasses: While there are certainly upside price risks stemming from the announced tariffs, markets are far more concerned with the growth outlook. Interest rate swaps are painting a perfect picture of a onetime price-level shock over the coming year followed by a disinflationary impulse over the following year.
Waitin’ for the bus: The balance of risks has gone out the window. There is no longer any balance, only tension, as inflation risks are firmly pegged to the upside while employment and growth risks are pinned to the downside. And the bumpy rollout, escalations, and reversals of threatened tariffs mean only more noise in the macro data to come. The Fed will come into play this year to deliver cuts, but for the foreseeable future it will continue to sit on its hands awaiting further clarity. We’ll likely get more policy transparency as we push through the year, but we’re also likely to get more macro uncertainty.
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The Magnificent Seven stocks are a group of high-performing and influential companies in the US stock market: Alphabet, Amazon, Apple, Meta Platforms, Microsoft, NVIDIA, and Tesla.
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