Brad here. As many of you know, I have been working on a much wider range of things here at Commonwealth, and as such, I have stepped back from a lot of the public-facing work I was doing. And that was fine as long as everything was going well. But when things become uncertain, we need someone to be able to explain what is happening—and why.
So, I would like to introduce Chris Fasciano, our chief market strategist. Chris has been with us for almost ten years, serving as a portfolio manager and strategist with the Select team. He came to us after a distinguished career as an equity fund manager. I am thrilled he has agreed to take on this role going forward, serving as a guide and explainer for the economy and markets.
I am not going away, of course. Chris and I will be talking daily about these issues, and you will get the best of both of us. But he will be taking the lead from here out, and I can’t imagine anyone better suited to do that.
So, with all that said, over to Chris.
Like most incoming administrations, President Trump entered office with a desire to do things differently than his predecessor, and he is certainly doing that. He has been aggressive in implementing some of his most important priorities. Better trade deals, lower government spending, tax reform, and deregulation could all benefit Wall Street and Main Street over the long term. The impact of the president’s success in executing his ideas in the short term remains to be seen, but here is what we know today and how it could affect you going forward.
President Trump has a history of policy through trial balloons that he uses as a negotiating tactic to achieve a desired outcome. This weekend’s news that he is implementing tariffs on Canada, Mexico, and China is the most recent example of how that works. To understand the impacts of that strategy, it is important to consider what might happen over the next few days and weeks.
There is a good chance that nothing happens. We have already seen the tariffs on Canada and Mexico delayed for 30 days after both countries agreed to do more to secure the borders. This delay would buy all parties some time to try and negotiate an outcome to avoid them being implemented at all. This would be the best-case scenario: an achieved outcome for one of the president’s priorities without an impact on the wallets of U.S. consumers.
But what if the sides cannot agree to a resolution, and tariffs are implemented alongside the ones implemented in China? It will remain to be seen if all the tariffs are implemented at that point or if a scaled-back version is the outcome. Either way, it would most likely result in higher costs over time for the day-to-day needs of individuals. The cost of groceries is an example of prices that could increase quickly. We all need to eat, and elevated prices at the supermarket have been a concern of consumers for the past several years. If we do see an uptick in prices, it could cause higher borrowing costs on credit card bills and mortgage rates.
Historically, higher rates have also had an impact on equity valuations. This could lead to a period of heightened volatility in the stock market. But we are a long way from reaching that point.
DOGE was put in place to eliminate wasteful spending and reduce regulations. In theory, this is a good thing. Looking at ways to make the government more efficient is a worthwhile endeavor that should have long-term benefits for consumers and markets. But, as always, the devil is in the details. One person’s wasteful spending is another person’s necessary program.
The road from campaign promises to governing is a hard one to navigate. The reality of being in charge often results in a tempering of expectations. The goals for DOGE are no different. Elon Musk has already addressed this head-on when he walked back his original goal of cutting $2 trillion annually from spending to $500 billion–$1 trillion. Cutting $500 billion–$1 trillion in spending would still be a positive outcome in the long term.
But the primary focus of DOGE is on weeding out inefficiencies and fraud that lead to unnecessary spending. It isn’t focused on freezing or eliminating current payments on programs that provide a safety net, such as Social Security and Medicare. In fact, if they are successful in achieving their goals, it could lower interest rates, lead to economic growth, and help make Social Security and Medicare stronger going forward.
There is always a fair amount to worry about, and this time is certainly no different. Currently, concerns about price increases in our daily expenditures or the end of government programs are the issues that matter to Main Street.
We came into 2025 with good momentum in the economy, and the consumer was relatively healthy due to a strong jobs market. This backdrop has led to an optimistic outlook from analysts for earnings growth from U.S. companies. For the time being, markets are focused on the potential risks to that outlook in the short term. It is important to remember amidst the doom-and-gloom headlines that periods like this tend to create opportunities.
No matter the news in the days, weeks, and months ahead, investors in the fixed income and equity markets will need to anticipate the impacts on rates and stock valuations moving forward. It is difficult, if not impossible, to time the markets. In the meantime, balance and diversification across equity and fixed income asset classes are the best ways to navigate uncertainty in the economy, Fed policy, and policies from the new administration. Remain vigilant, and look for opportunities created by short-term noise to benefit portfolios over the long term. Stay calm and carry on!