It is time to relook at the whole portfolio overlaying the Tariffs which could potentially impact bottom-line and topline for companies. As I mentioned earlier if the Tariffs situation is not clarified by end of April we will have to start increasing the probability of worse case scenario I painted in this post.
- Consumer Pullback: Companies are facing pressure from both rising costs of goods sold (COGS) and declining revenues. As economic uncertainty rises, consumers—already stretched and having depleted their post-COVID excess savings—are expected to cut back on spending.
- Potential VIX Spike and Market Downturn: There is a high probability of another significant VIX spike and markets hitting new lower bounds. As the market begins pricing in an economic growth slowdown, it could force the Federal Reserve’s hand into cutting rates. However, historically (e.g., 2022), markets tend to crash first before rallying in response to rate cuts, suggesting 2025 could be similarly volatile.
- Treasury Market Risks: About 30% of U.S. Treasuries need to be refinanced this year, potentially creating further volatility. If Treasury auctions perform poorly and bond yields spike abruptly, it could add a second major source of turbulence alongside earnings downgrades.
- Misplaced Inflation Concerns: Those overly focused on inflation are missing the broader picture—looking six months out reveals a consumer sector under significant strain, not one fueling inflation.
- The Economic “Trifecta”:
- Consumer Slowdown: Reduced discretionary spending.
- Business Pullback: Companies cutting capex and discretionary spend amid tariff and trade uncertainties.
- Government Spending Cuts: Gradual tightening of fiscal spending, further dampening economic momentum.
A chart for visualizing how the ‘Possibility of 2025 mimicking 2022 bear market’ looks like:
*Chart by Breakpointtrading.net
I heard somewhere the S&P consensus estimates are at 12% earnings growth vs 15% earnings growth at the beginning of the year. This doesn’t seem to show we are pricing in any form of recession or earnings slowdown.
Tech may get hit by slower growth.
– Goods: Amazon openly mentioned about demand destruction due to Tariffs
– Ad Spend: Temu and Shien ad spend pull back
– Cloud: Corporates may start pulling back on capex spend due to Tariff uncertainty
Signs of consumer slow down: I see Chipotle as a bellwether which inspite of the inflation still provides the best quality, quantity and taste, thereby providing best value to consumers. Chipotle has reported first negative SSG (same store sales) since Covid.
Portfolio changes:
Time will tell if trimming Tesla is a mistake. Every time I sell a stock it goes up (up 10% on the news of nationwide robotaxi regulation). Sectors I am staying away are FinTech, Retail/Consumer discretionary, Autos which may be hit harder. Price is still not discounting the economic slowdown.
We will back on the AI cycle bandwagon, but before that we will have to negotiate near term macro.
Uday Reddy 