Tariffs, Inflation, and Market Resilience - 4/25/25

In this episode of Paramount Wealth Perspectives, host Chris Coyle and Chief Investment Officer Scott Tremlett dive into critical market updates following the recent tariff announcements. They discuss how negotiations have eased initial economic fears, the shifting inflation outlook, updates on Fed rate expectations, and the resilience of the bond and stock markets.

Scott also shares important adjustments to his investment strategy, including a shift away from U.S. equities, a focus on infrastructure and cybersecurity sectors, and an increased allocation to international markets. Tune in for timely insights, strategic positioning advice, and a clear breakdown of how global events are shaping the investment landscape.

🎙️ Stay informed. Stay ahead.

Transcript

Chris Coyle: 0:00

Intro song

0:11

Hello everyone. Welcome to Paramount Wealth Perspectives, your go-to podcast for the latest updates on global markets and current economic events. This is your host, Chris Coyle. I am the marketing director and financial advisor here at Paramount Associates Wealth Management, and I'm joined by Scott Tremlett, chief Investment Officer here at Paramount Associates Wealth Management. Today I've prepared some questions reflecting on points in the last episode, as well as a few other ones I believe to be extremely relevant at this time. So now let's begin. Last time you spoke about the unexpected magnitude of the tariff announcements and how they came at a fragile moment economically. Since then, Scott, what's changed on the tariff front and is the overall outlook improving? Thanks, Chris. Well game on. Absolutely. The outlook is improving. What we've seen is a significant divergence from what could have happened originally, if nothing changed, we were looking at a 38% average effective tariff, and that would've been incredibly disruptive. But with pauses and negotiations kicking in, the actual rate is now closer to 18%. The US and the European Union have agreed to a 90 day pause on many of the new tariffs. The EU is proposing a zero for zero industrial tariff deal. Sounds great, but the US wants major commitments in return, like a$350 billion energy purchase. China, on the other hand, is an outlier. The US raised tariffs to 145% on Chinese goods, and China responded with 125% on US exports. While there's been easing on specific items like semiconductors, this really essentially a halts. Bilateral trade between the two countries. That said, countries like Japan, India, and Canada are moving quickly in talks, and South Korea may actually ink a deal as soon as next week. So we're getting signs of progress, but it's not locked in yet. So yes, there have been improvements in the outlook. That's good to hear that there have been improvements in the outlook. I certainly know the markets have appreciated the overall negotiations. Next question I want to ask you about Scott is inflation. Inflation fears really spiked after the announcements I. What's the picture now and what has it done to the Fed rate? Cut expectations? Yes. Inflation expectations did initially jump. We saw consumer inflation forecast really spike, but since they've cooled down, the Fed is now expecting CPI to end the year around 2.7%, up from the current 2.4%, and other estimates I see are hovering between 2.5 and 2.8%. Still. However, the consumer expectations are sky high. People see inflation at 6.5% in the next year, which would be the highest since 1981. That fear pushed the 10 year yield up to 4.5%. Before it stabilized. As for the Fed markets are still pricing in three rate cuts this year, but officials have been cautious. They're saying it's too early to make the call until the full impact of the tariffs play out. I appreciate the insights, Scott, and the, the data that you provided sounds like there's quite the discrepancy between the Fed expectations and consumer expectations. Next question, Scott, is what about the bond market? Have we seen the foreign selling? You warned against That was a fear. Yes. But despite the noise, we haven't seen China sell us treasuries. In fact, foreign investors increased purchases by 22% in April compared to March. There was a brief stretch in early April where foreigners sold treasuries, eight out of 11 trading days. This was largely driven by Japanese private investors, but the biggest reductions actually came from investment advisors and not central banks. So the weaponized treasury selling fear hasn't materialized to this point. It's good to hear that it hasn't materialized. Um, certainly will keep an eye on that and I'll continue to ask you questions about that, Scott. Next question is there was a lot of concern about these tariffs that they could tip us into. A recession has that narrative held. Great question. Initially, yes, recession risk surged markets dropped hard. The s and p fell nearly 13% in just four days. The steepest dropped since the beginning of Covid. European markets dropped over 8%. Indian China, they saw hits to. But since then, there's been a rebound. The s and p is up nearly 10% from the bottom. Those still below the February peak, the forward price to earnings ratio dropped to 19 times earnings and has since climbed back to 20 times. More importantly, the messaging outta DC suggests they're actively avoiding recession territory. Some tariffs are being rolled back and deal making is ramping up all signs. They wanna keep this expansion going. Thanks Scott. You make some good points about the market's overall resilience and I would have to agree that the recent negotiations out of DC suggest they are actively trying to avoid a recession as well. Another component of a recession is unemployment and the recent continuing jobless claims have continued to decrease throughout the month showing stabilization. Last point I want to touch on Scott is positioning. You said stay structured last time. Has there been any changes to your outlook or your portfolio strategy since then? Yes, I have made a few important updates. I've lowered my s and p 500 year-end target from 6,175 to 63 50 to a more conservative 5,500 to 5,800. So I'm really looking away from US stocks and towards. Other types of assets or regions to drive performance in 2025. After the initial tariff announcement, I did move away from some high beta US stock positioning, and I bought a bunch of gold. I took profits on my gold positions and rotated into infrastructure and cybersecurity tech themes tied more to reshoring defense. In a more digital economic system, I've cut all public bond exposure except for some short term treasuries. And my foreign stock overweight, which I've held for a while, has helped offset losses in US equities. I plan to maintain and even increase that exposure in the future. So yes, still structured, but more tactical in response to where policy winds are blowing. Thanks for your sharing those insights, Scott. Sounds like you've been quite nimble. Certainly the international exposure that you've been holding has paid off and sounds like you've been, again, quite nimble within the US markets. So I, I really do appreciate you taking the time to share your insight. Scott, I also want to thank all of our listeners for tuning in. Remember, if you have a question that you would like us to answer, please submit them via email to general@paramountassoc.com. But for now, stay informed. Stay ahead and join us next time for more key updates shaping the global economy.