Money Matters with Greg
Needing guidance on finances, or just curious about investments? Join CEO and Owner of Farrall Wealth, Greg Farrall, as he dives into all things relating to money and often interviews interesting people he is fortunate enough to call his friends.
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Money Matters with Greg
Episode 158: Markets in Turmoil: Navigating the Trade War Tempest
The financial markets just experienced what might be the fastest bear-to-bull transition in modern history, and Farrall Wealth's leadership team is here to explain it all.
Dubbed the "tariff tempest" by Chief Investment Officer John Farrall, this extraordinary period saw major indices plummet as much as 22% following President Trump's April 2nd tariff announcements before staging a remarkable recovery. What appears calm on the surface - with the S&P 500 and NASDAQ up about 1% year-to-date - masks some of the most dramatic market swings since World War II.
We dive deep into how this volatility manifested in real businesses. We share the story of a client whose shipping container barcode business saw weekly revenue collapse from $4,200 to just $200 during trade tensions. The subsequent 90-day "timeout" on tariff implementation and positive developments like the UK trade deal and major business announcements during Trump's Middle East trip have fueled a sustained market recovery.
Looking forward, we explore where the smart money is flowing now. Small-cap stocks, which fell 27% and remain 12% below previous highs, may represent continued buying opportunities. On the international front, we're seeing a strategic pivot away from China-heavy portfolios toward countries positioned to benefit from supply chain reorganization - namely South Korea, Thailand, India, Vietnam, and potentially Mexico.
The fundamental outlook remains positive, with large and mid-cap companies sporting historically strong balance sheets. Despite 80% of companies lowering future guidance during the market uncertainty, corporate America's underlying financial health suggests this brief bear market was more of a mid-cycle correction than the beginning of a sustained downtrend.
Want more insights on navigating these dynamic markets? Visit farrallwealth.com or reach out directly to greg@farrallwealth.com with your questions. Subscribe to Money Matters with Greg wherever you get your podcasts to ensure you never miss our quarterly market updates.
Securities and advisory services offered through LPL Financial, a registered investment advisor. Member FINRA/SIPC.
The opinions voiced in this podcast are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may suit you, consult the appropriate qualified professional before deciding.
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Speaker 2:Hey, good afternoon. It's Greg Farrell, ceo and President of Farrell Wealth, the wealth management firm here in Valparaiso, indiana. The show's Money Matters with Greg, so welcome. Thanks so much for listening and being a part of this. We broadcast on WVLP 103.1 FM locally here on Thursdays at one o'clock in the afternoon and then again on Saturdays as a replay. We also broadcast through our podcast as well as TuneIn Radio. On TuneIn Radio you can find us WVLP and find the feed there. You can also find us streaming on WVLPorg. You can also find us streaming on WVLPorg and then also anywhere you podcast or anywhere you pod Apple, spotify, amazon, google, wherever YouTube, wherever you pod. So thanks for being here.
Speaker 2:We talk here on this show about money matters and how it matters to you in your life and how it intertwines into your life, weaves its way in multiple different ways and try to add some value to you and your families from all things that are money and whether it be investments, debt, credit you name it estate planning and just conversations as such. With that being said, we are very excited to to welcome in my esteemed brother and chief investment officer to the firm CFA and investment officer here. We talked on March 1st or March 12th sorry about the markets and there's been just a little bit of change since then and I wanted to bring him on today to discuss as well. Introduce him in one second. I wanted to remind everybody that the opinions discuss as well. I introduced him in one second.
Speaker 2:I wanted to remind everybody that the opinions voiced in the podcast are for general information only and not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may suit you, consult the appropriate qualified professional before deciding. All right, John, now that we've satisfied the compliance department and the people at the compliance office, tell us, by the way, welcome and thanks for being here. Thanks, pleased to be here again. Yes, good to have you on again and tell us, tell the audience has anything happened in the market since the last time we visited, which was March 12th of 2025?
Speaker 3:Just a little bit and for any of those who are looking at the podcast, that happens to be episode 152. And we were talking about how healthy that correction might be. And we were talking about how healthy that correction might be, and boy did it get healthier, because it took us almost another month to really see the lows set in that particular correction. So we've been basically from where we were talking, or even year to date, from up 5%, 6% for most everything we track in the major markets to down as much as 22%. So a formal bear market correction on at least the NASDAQ 100. And back again, because right now the NASDAQ 100 is up 1.3% for the year, s&p up about 1% or so for the year. Nothing. You know, if you had fallen asleep on January 1st, woken up right here right now, you would have said no, no, big change. Of course we know better because we saw major market lows, as much as uh, 20 lower than here.
Speaker 3:So it all comes down to what I'm starting to talk about. Is the, the, the tariff tempest, or tantrum um trump's, you know, announcement on liberation day of what the tariffs were going to be and then the fallout from it and then the timeout for it, which is about where everything hit its lows for the year, was the day after that, on the 8th there of April. That's where we have our lows for the year so far, and things have gotten much more clearer since then, although nothing's really resolved right, greg. I mean, it's not resolved per se, but we've got at least one major trade deal announcement with the UK and we've got promises of more, and we have the 90-day clock continuing to tick on the timeout.
Speaker 2:Yep, very true. On the timeout Yep, very true. Yeah, the thing I wanted to be able to mention and say is just, yeah, we had obviously reaction to all the tariffs, right, the market falls apart. And then, basically, you know, april 2nd was Liberation Day, and then April 9th was oh no, not necessarily day and then we went back up. I mean we've had just moves of 5%, 4%, 9%, you know, like literally the biggest move since World War II, up and down in many of these ways. So it's just the volatility has been crazy and now we're really trying to find the calm is where, you know, we've got 90 days here. It seems like everyone's lined up to do some work or some negotiation. I mean, what are you seeing as far as out there? As far as the market, now the S&P 500 has kind of returned. It's up a little over 1% for the year here, which is great, considering it was down 13%. But what are you seeing out there?
Speaker 3:Yeah. So the next level of this I think we just saw this past week as President Trump went to the Middle East, and it wasn't over Israel and it wasn't over Iran or potential war war. It was over, you know, trade partners and new partnerships across um, the uae, the um arab emirates, across um, you know, across, basically, saudi arabia, and he lifted sanctions, uh, that have been a long time in place on Syria. So with that, he's claiming somewhere around $4.2, $4.5 trillion with a T dollars of new investments to the US. The biggest deal in Boeing's history was inked this past week for 160 to 190.
Speaker 3:You know the numbers have been moving around as far as new aircraft. Those are some of the things that the market, we believe strongly, the market prices in future cash flows, future earnings, future returns, and it looks like those future returns are all going to be positive. And it looks like those future returns are all going to be positive. That's a far cry from where we were when it looked like we'd never trade. You know, we kind of went to an extreme but earnings were clearly in free fall as management teams weren't sure how much trade they'd be doing. And boots on the ground, greg, we have clients. We have a client who does barcodes for shipping containers and shipping containers primarily from China, and his normal run rate is like $4,200 a week and he fell all the way to $200 a week. So there was very quickly, no trade, no trade.
Speaker 3:The other thing that we saw and it's going to be the rubber band being stretched and then bouncing back was we saw a lot of people try to beat the tariffs and import early so that they had supplies on hand, and so we had some pretty crazy numbers in GDP that we talked about last episode, and they came to fruition because if we have lots of imports, no exports, we have a negative gross domestic product, or at least that's how the math runs Now, fairly temporary and going to reset and reallocate, but with the onshoring, you know, people being highly encouraged to build plants here, not plants in Mexico, canada or somewhere else in import to here, we're going to have a changing dynamic in our gross domestic product over the next two to three to four years as all this comes to fruition. So I think net, net, net. It's all very positive, but watching the sausage being made here has caused an awful lot of volatility and heartburn.
Speaker 2:All right. So it's been a wild ride. So we've obviously seen through the rear view mirror here what trade wars are. I mean, you know you and I both have been through. You know I was telling clients and I traded dot com, boom, dot com, bust, traded devaluation peso. You know the Great Recession, that pandemic. You know the Great Recession, that pandemic. You know that was something none of us went through in the entire industry. Nobody's traded through a pandemic. And now a trade war. So at least in a very quick one at that, you know per se, as far as volatility goes, how are you feeling about all this as far as the future now, like, where are we? I know where we've been in the rearview mirror, but when we look in the windshield here, where are you seeing that we're headed?
Speaker 3:Right? Well, if we break out the crystal ball, as best we can tell, first of all, we have a trade reset or renegotiation, and 10% tariffs look likely to be here to stay. I mean, the UK is the one example we have so far and they have a 10% tariff across the board. So if they have a pay to play and pay to access, I surmise that everyone will success. I surmise that everyone will. And one of the things that President Trump was talking about was you know, we are a great market, we're a great consumer. People want to be here.
Speaker 3:Why shouldn't we have a baseline tariff to, so to speak, enter the building? So I don't think that's necessarily forecast into any of the budget reconciliation and things. That's. The other thing that we've been watching here recently is tax reforms, but there is a new, not internal revenue service, but external revenue service, and tariffs are a real thing going forward, so that's a little different. Are a real thing going forward, so that's a little different.
Speaker 3:The other thing I would say you asked, you know, crystal ball is, well, you know, versus the tech bubble or the financial crisis or COVID, this trade tempest correction and official bear market, at least for the NASDAQ, ended up being at a time and place when balance sheets and financial conditions of the large and mid-cap companies have never been better. So I kind of expect this to look more like a mid-cycle correction or like a resumption of the structural bull market that we saw before, but punctuated by a very short reset of a bear market scare. So hopefully clients that might have been scared out of cash get back in and get back in quickly, because I think things are set up for a really positive market return over the next three to five year time horizon.
Speaker 2:Yeah, what are you seeing? Earnings were a little softer going into earnings season. It just ended. We're done here. We'll be looking for the summer and you know everyone. The old adage is sell in May and go away and that hasn't worked the last few years. But what are you seeing as far as earnings going forward? Looking at some of these companies, you know how are we doing.
Speaker 3:Like I mentioned, it was either the tariffs or near-term things that companies were saying or just the ability for management teams to take guidance down or stop giving guidance at all. Any companies did that. But the big picture is, even though we saw really good, solid earnings by 90% of the company, we also saw almost 80% of the company take down their estimates in the second quarter and the rest of the year, so earnings were falling. 80% of the company take down their estimates in the second quarter and the rest of the year, so earnings were falling. Now they're not falling or they're falling less because the companies again are in a timeout period.
Speaker 3:So presumption of the timeout, I guess the big question is how many deals get done by the end of the 90 days, or do we have another extension, which likely we might have, and or how many go back to the pre-pause level on tariffs and really see major disruptions in their supply chains, and so that's where the crystal ball is a little cloudy. I happen to be more of a positive you know, optimist on that. Management teams are paid to manage their companies through, you know, these wins and most of them are doing it. I mean there really were not very many large-scale surprises so far and I don't expect a whole lot going forward for the majority of the companies that we care about?
Speaker 2:Yeah, with that, I mean, how about opportunities? You know, what are we looking at as far as where to go from here, you know, where are you seeing as far as, maybe, industries what should we be looking for as things change here, as things evolve? And then also countries, um, as far as where to look for, uh, those opportunities and trying to, you know, make some money, I mean, international has been up for the first time in forever, overall certainly beating the S&P 500 for now, and continues to do. As far as the international indices, what are you seeing out there, not only in the industries but in the countries?
Speaker 3:Right. Well, a couple of things. One, the countries are impacted. Usually their returns are impacted by changes in the US dollar. So the dollar was very, very strong. It also went through a period of weakness. It wasn't just like everyone ran to the dollar during this trade tariff. Actually, people ran away from the dollar the dollar weekend, which helps bolster returns in the international side of the fence.
Speaker 3:As far as what we saw in both developed markets and emerging markets, and, in particular, we think the administration wants a strong or stronger dollar. Many of the things that are in place with the Federal Reserve and what's going on with budgets, we're actually running a budget surplus. It's early, but budget surplus and the tariffs, of course, help. They don't hurt in that regard. We expect the dollar to continue to bounce back, which it has, or be relatively strong. As far as the sectors or countries. Let me cover a little bit of both.
Speaker 3:One thing I said was balance sheets were never really much stronger and larger mid-caps were very prepared, not so much with small caps. Now, you wouldn't expect small caps to necessarily be on the cutting edge of import-exports, but when you do drill down into small caps, they are only slightly more domestic. They actually are fairly sensitive to international flows and most of the small cap indices have not bounced back. So whereas we've seen the S&P 500, the large cap drop as much as 19%, in its fall, right now it's only 3.5% off of its all-time high and the all-time high was set there back in February high was set there back in February. The small cap index, in contrast to that, dropped 27%. So not 19, but 27, fell further, is still 12% off of its high, so it has not rebounded as much. And I think part of our thesis on small cap is one of the biggest things that would benefit small cap companies hasn't happened yet. We got hints of it. But tax reform, tax cutting, pulling forward of capital expenditures and giving tax credits for that these are all wildly positive for small caps, all wildly positive for small caps, and we haven't necessarily seen the green light there. So it makes sense that small caps continue to underperform their larger cap peers. So that's one place where we haven't really seen. You know things got marked down Great. You know we'd rather buy. You know 20 or 30% off and they haven't rebounded yet. So it's still kind of a buying opportunity or the clock is still ticking there.
Speaker 3:As far as countries go. We've seen some rebounds countrywide, even excluding the impact of the dollar, but one of the things that we expect is that China will lag compared to other countries. Just one of the things that we expect is that China will lag compared to other countries. Just if you talk about tariffs and free-er trade not free trade, but free-er trade the countries who kind of play ball and lined up first are going to negotiate first. Now I know there was a ceasefire kind of announced with China here recently, but longer term we really don't expect China to be the biggest beneficiary of trade deals. It's going to be other countries and, if anything, we're going to continue to limit or walk away from some trading partnerships with China that maybe we otherwise would have had. One of the reasons why, when we did reposition and pivot in an international space, we pivoted toward some funds that were emerging markets, excluding China, and or were more internationally focused, where China was a smaller portion of what we're investing in internationally.
Speaker 2:Yeah, and those would entail, you know, many, to just list a few, would be looking at South Korea, looking at Thailand, india, vietnam as alternatives, mexico, even even though nothing's been inked with them as far as a trade deal opportunity. That's going to benefit many of those countries where things shift, and I think it's. I think if there's one thing I think covid really brought was an awareness to all americans, or most americans, was just how much of a dependency did we have on a china? Uh, certainly, our pharmaceuticals, our generics and a number of other things that are all made, you know, made over there, um, so it was sort of a like I think it was definitely eye awakening.
Speaker 2:I certainly didn't know that many of the generics that most of us all take, uh, for, let's say, cholesterol or high blood pressure or whatever might be, um, you know, are made, processed and developed, um, in china. So that was, you know. That was certainly certainly interesting. I think there's going to be more of a shift as companies, because moving a move in a big company, a big multinational company, is like moving a battleship, I mean, you cannot move it quickly, uh, it's very difficult to be nimble.
Speaker 2:So it'll be interesting to see where that all goes here in just the next year and where things are headed. For sure it's something we'll be keeping an eye on, without a doubt. For sure. Real quick, just station identification Again WVLP 103.1. We're broadcasting at 103.1 FM here locally in Valparaiso, Indiana.
Speaker 2:The show is Money Managed with Greg. It's a show about money and how we can help you with your money. We also podcast on Spotify, Apple and anywhere you pod Find us. Just search Money Managed with Greg. This is episode 158, and we're very excited to have John Farrell, our Chief Investment Officer and magnificent older brother, here at Farrell Wealth talking to you today overall on just kind of what's been going on since the last time we met, which is March 12th. So we're going to try to do this on a regular basis for everybody, just to kind of give you an idea of what we're seeing and what we're trying to do and what we're developing for clients' accounts and as far as being active managers and what we do in regards to our investments, to try to bring what we're seeing for our clients to you, to the public, to maybe take advantage of or follow along. John, is there anything you want to be able to bring up here as we kind of walk towards the end of the show.
Speaker 3:One of the things that we were kind of talking about was trade and trade wars. The other thing I just want to allude to too, and another reason why we're kind of still less positive on China than other places in the world and also more hopeful that we'll have some cooperation, is not real wars, but drug wars. You mentioned pharmaceuticals real quickly, mentioned pharmaceuticals real quickly. You know, we still have a fairly major fentanyl problem and, um, cleaning that up I think would only bode well. But that's where there's an extra tariff on china, not just the 10 that everyone has and china has it too, but another 20 on top of that as an incentive to help, you know, um stop the fentanyl trades that have been going on.
Speaker 3:Now you mentioned and I agree with as well Mexico, Brazil, but any of the Latin American countries are places where they want to do trade deals. They want more access to the United States market, and one of the things that's going to be not really a tariff or you drop your tariffs, we'll drop ours but a discussion with those countries will be the cartels and the drug war that has been going on. So that's the other thing. I think clients should pay attention to that as that improves as it improves and I hope it will it only means better things for us as a country and us as a country that invests in our future, future business flows, future businesses, future generations of business leaders. So that's one thing that we're keeping an eye on. There's no direct investment per se. It's not like we've got a stock that is a drug cartel stock per se, but I do think it impacts, impacts and has impacted negatively the last few years. Just quietly, it's been a major drag on productivity here in the United States.
Speaker 2:Yeah, absolutely Okay. The show's Money Matters with Greg. I want to thank John Farrell, chief Investment Officer at Farrell Wealth, for being here today. It's fantastic Always great to see you and usually we're on the phone, so it's good to see your face and catch up. We recently opened up an office down in Tampa and John's going to be heading that up, which is fantastic, so we're very excited for that. I was just down there the other week and it's a wonderful office in South Tampa down in the Hyde Park District and it's a fantastic area.
Speaker 2:If you've never been there, come visit Certainly. If you're around, stop on in. You can find us at farrowwealthcom. You can email me at greg at farrowwealthcom and any questions as well to john at farrowwealthcom. We're very available and very accessible and would love to have you. Just if you've got some topics you want to hear about on this show or just discuss overall financial conversations, we're here for you. You can also find us on YouTube, on our YouTube channel. You can find us on all the socials as well. This podcast will be put up on Apple and then, like I said, youtube and anywhere else. You pod coming up here and I want to thank WVLP FM 103.1 for all of your help as well and being a part and a partner. With all that being said, john, you want to say goodbye to the audience.
Speaker 3:Yeah, goodbye, and we'll see you next time. We hope to do this once a quarter, so maybe by the time we're doing this again, we have more answers as far as what happened with trades, trading partners and all that kind of stuff over the summer. Until then, have a great summer all.
Speaker 2:Have a great summer. Thanks again. Talk soon, guys. Bye.
Speaker 1:Thanks for tuning in to Money Matters with Greg. We hope you gained some valuable insights today. Remember your financial journey is personal, but you don't have to go it alone. If you enjoyed the show, be sure to subscribe and share Until next time. Here's to making your money work for you. Securities and investment advisory services offered through LPL Financial. No-transcript.
