July 2025
Ignore the Hype
Christopher P. Lorenz
Three months ago, my commentary on market conditions reminded investors that it is a mistake to let politics, and the media distract from the importance of math, compounding interest, history and the resilience of our economy. When market sentiment quickly turns negative like it did this spring based on “potential” tariff repercussions, new immigration and trade policies I revert to my long-held policy of listening to those directly affected, our portfolio companies’ CEOs. Our business leaders have seen political winds change consistently and they build businesses accordingly, to weather and navigate these changes.
Right as the White House explained their new tariff policies our companies were reporting their first quarter earnings. While many CEOs voiced their concern over tariffs, very few were surprised. The President has been advocating tariffs and the need to level the playing field with our international trading partners for decades. Many investors forgot that higher tariffs on China were strongly supported by democratic leaders as well. While the media made it seem like corporate America was shocked by the new policies, CEOs had been preparing for years and were ready. In his first administration the President implemented significant tariffs, which the Biden administration kept in place, additionally, companies like Apple, have been moving production out of China for many years.
When market sentiment turns negative the quarterly conference calls with management teams from our portfolio companies take on more weight. Is their business being impacted? What is the range of outcomes? What is their outlook for profits? The quarterly call I value most is Bank of America. Pine Capital started a position in BAC right after the financial crisis based on my confidence in their CEO, Brian Moynihan. His comments reflected what many investment professionals already knew that the economy is slowing from last year’s fast pace, but his key indicators like asset quality, debt levels and consumer spending were not showing signs of stress.
The media ran wild with the tariff news espousing uncertainty and potential economic destruction from tariffs. They pointed to consumer sentiment indicators that had plummeted. But BAC has an enormous footprint with the American consumer, through retail banking, wealth management (Merrill Lynch), mortgages, credit cards and commercial banking. Luckily for us, Mr. Moynihan has real data, and commented that despite polls, consumers have not stopped spending. He knows what we know, which is that the consumer sentiment indexes rarely predict consumer activity. Never underestimate the desire and ability for American consumers to spend. He didn’t discount the potential for major disruptions from tariffs, but neither did he sound the alarm. BAC’s Moynihan wasn’t alone. In fact, many of our CEO’s said they were monitoring things carefully but had solid demand for their products and areas like cybersecurity, data computing and industrial demand was healthy and even a rise in certain import costs wouldn’t derail their long-term outlook.
The dramatic nature of the new tariff policies allowed the media to present a narrative that they would “kill our economy”, but very few reported the actual math foreign trade has on our economy. When talking with investors many were surprised by what a small part of our economy it is. Additionally, very few understood the tariff levels and trade barriers we are charged by other countries, like Canada who implement significant trade barriers and tariffs going back decades. The economic impact from tariffs isn’t easily calculated, no matter how simple the media made it seem. Once again, we can look back at recent history. The large tariffs put on by the first Trump administration, and maintained by Briden, had very little inflationary impact, because the Chinese government subsidized their manufacturers and other counterbalances, like a lower dollar, muted the effects.
I am blessed to work with clients who trust me, even when the markets are stressful. They saw the merit in the points I made in early April and allowed us to step in and add stocks at very attractive levels. Some of our favorite stocks were down 35%. We trusted our CEOs, our math and our knowledge of history. Most importantly, we ignored the media hysteria. It was understandable that many investors were fearful because politics seemed to be infused into everything. DOGE, immigration, and tariffs dominated the airwaves, and the term “uncertainty” topped the headlines. As a professional investor, I know nothing in the economy is “certain”. We make decisions every day despite a certain degree of uncertainty.
My clients now ask why the market bounced back so quickly, and I remind them that sentiment can drive short term market moves, but corporate earnings drive sustained stock price trends. Media bias should be ignored, and the intersection of politics and investing is less direct than many believe. Inflation rates continue to improve, earnings are holding up as expected, and the tough talk from the tariff team has been complimented by a more pragmatic approach from the Treasury Secretary. The impact from the new trade policy won’t be fully known for a few years. We already see price increases in some sectors, but they are being offset by deflationary influences. As we said in April, tariffs are absorbed by trade partners, importers, retailers and the U.S consumers.
More importantly, the economy is slowing but not falling off a cliff. First quarter earnings grew double digits, which was far above expectations. Earnings for “mega cap tech” are decelerating but other parts of the economy are accelerating. There are a few “mega-trends”, like increased electricity consumption, that are buttressing our economy and worthy of more discussion in my next update. In April a recession was a foregone conclusion for some, but we disagreed. I continue to believe that a recession this year is highly unlikely, and 2026 looks ok as well.
As we enter a new earning season, I will be listening again to Mr. Moynihan and other CEOs about what is happening in their businesses. I have no doubt that uncertainties will be part of the discourse, but we will benefit from studying their hard data, ignoring the media, and following the profits. We put significant cash to work in April, and now with the S & P above the pre-tariff levels we are letting our allocations stay where they are. The U.S economy is resilient, and our corporate leaders have proven to be the smartest folks at the table. If you want to know what impacts your investments, turn off the news and tune into quarterly conference calls, which are always available on the companies’ website’s investor relations page. If they are too boring for you, give me a ring. I love to talk about this stuff.