Uncertainty Takes Center Stage
In our 1Q 2025 commentary we delve into the key drivers behind market performance, focusing on five key questions:
1. What are our thoughts on tariffs?
In thinking about tariffs, we see three channels of impact – on domestic consumption, a lower trade deficit, and the headwind of uncertainty affecting consumers and business investment.
2. How are tariffs likely to impact interest rates?
The Fed has been pushed into a holding pattern until there is more clarity on the Trump administration’s overall policy, and the impact of tariffs on prices and consumption. Therefore, we would not expect a material decline in short-term rates in the near future.
3. What is our view on the U.S. consumer at this point?
Looking at recent survey data, it appears the U.S. consumer is feeling far more negative than just a few months ago. With employment still quite strong, we do think consumer spending should remain intact, although with perhaps more deterioration for those at lower income levels.
4. What are the investment opportunities abroad?
Our international team continues to see quality companies abroad that are underpriced relative to their U.S. peers, using a bottom-up focus that is allowing these portfolios to add quality diversification.
5. What are our updated thoughts on AI?
We believe AI technology is still in its early experimental stages. Our concern is how tech companies will monetize their significant investments in AI, as not all disruptive technologies result in substantial profits for inventors or early adopters.
You can also listen to our Q1 analysis in Episode 279 of our stock market podcast, KayneCast.
