One of the strange dynamics on Wall Street is the conflict between the short-term nature of trading and the long-term nature of investing.
The short-term mindset is easy to see.
If a company misses analysts’ guess at earnings a stock will drop, even if management is demonstrating their long-term strategy is working.
A new competitor entering the market can cause a stock to drop, even if the threat isn’t hurting their business. (see $Hims & Hers Health Inc.(HIMS)$ stock when Amazon announced a telemedicine product)
This short-term mindset is visible on a daily basis and it’s what gives us an advantage as Asymmetric Investors. We can take advantage of short-term blips and buy long-term potential the market is missing.
But then we see times like this month where the market rises as people post charts like this, predicting empty shelves by Memorial Day. There’s turmoil and pain coming, which should impact markets negatively, right?
But it hasn’t.
That may be because the market’s focus isn’t on next week, it’s on next year.
We say it all the time, but the market is a forward looking mechanism.
Sometimes what the market is looking at is stupid, like whether or not analysts are raising earnings estimates or what interest rates are doing, but stock values are the present value of the expected future free cash flows. That’s the theory anyway…
So, why aren’t stocks down because of tariffs?
Someone on Twitter gave a theory that resonated with me (I can’t find the source but want to acknowledge this isn’t an original idea).
There are two likely scenarios long-term for the U.S. economy and markets.
Scenario 1: The bond market (maybe the stock market) freaks out, raising interest rates for the U.S. government, forcing President Trump to back down on tariffs. Long-term, that’s bullish for stocks.
Scenario 2: Tariffs remain high, but the U.S. economy is so resilient we trudge along and employment remains strong, wages go up, and there’s an economic boom driven by tariffs. Long-term, that’s bullish for stocks.
Despite all of President Trump’s irrationality when it comes to trade, any rational person would say that he’s not going to be so stubborn he’s going to drive the economy into a deep recession, or depression, just to make a point.
Eventually, he would give in, China would give in, or businesses would find a way to survive.
Q2 2025 may be bad for a lot of companies, but stocks are based on expectations for 2026 and 2027. By then, tariffs will be in the rear view mirror and the two scenarios above point to bullishness for investors.
It may not seem logical stocks are going up. Unless you think through the potential scenarios of this tariff gambit and then it’s entirely logical to be bullish long-term.
May 11, 2025: The Capitulation
And that leads us to tonight. The White House put out the following press release indicating, “substantial progress between the United States and China in the very important trade talks“ and the market has breathed a sigh of relief.
U.S. Announces China Trade Deal in Geneva
Secretary of the Treasury Scott Bessent: “I'm happy to report that we made substantial progress between the United States and China in the very important
www.whitehouse.gov/articles/2025/05/u-s-announces-china-trade-deal-in-geneva
The worst-case scenario seems to be off the table and now we can focus on earnings again.
Did I mention how amazing earnings were for most companies in the Asymmetric Portfolio? If it weren’t for the tariff uncertainty, the numbers would tell you the market should be going higher.
Until the next short-term blip to capture the market’s attention.
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