Market Observations
Undervalued Stocks and Are Tariffs That Serious?
Welcome back,
Happy late Thanksgiving, I hope the last week has been restful and enjoyable with family. My wife and I are trying to catch up on rest from having moved down to Franklin Tennessee just before the holidays!
If this is your first time reading these posts, thank you for reading. I have a passion for the markets and people. In writing this weekly post I am able to keep myself accountable by diving deeper into topics than just headlines, and hopefully provide you some value in your own research or interests.
I believe money is a tool, given from God, to accomplish his purposes. The Bible has 2,350 verses about money. How should we handle our money knowing it is a topic of upmost importance to God? Did you know that investing is Biblical? The Bible calls us to be both stewards and multipliers of money (Matthew 25), as well as generously open handed with our money (Proverbs 11), but ultimately the Bible calls us to be on guard against this tool attempting to fill a hole in our heart that only Jesus can fill (James 3 - Exodus 20 - Matthew 6).
Regarding my passion for people, I believe we live in a time period that will be looked back on as an information and entertainment glut. While entertainment in itself is not bad, entertainment in subjects like economics, politics, and public information (news/MSM) is slowly eroding a generations ability to think critically for themselves, me included. Gen Z is now nicknamed “the anxious” generation, this should be no surprise as 7+ hours a day are spent in gazing/scrolling into comparison and self absorption. In fact if you’ve made it this far, congrats, with an average attention span of eight seconds I shouldn’t expect you to get past the first paragraph!
Today, you will see 5,000+ advertisements, targeting your deepest vulnerabilities to drive you to make decisions, or condition you to make a decision into the future. This weekly article has no strings attached. I am genuinely interested in the pursuit of critical thinking and learning for both myself and you, so we can be better stewards of money.
Reach out to me anytime.
Market Update
The s&p 500 is currently sitting at all time highs and has boasted gains of 32% year over year. The transition of Trump’s cabinet selections, regardless of personality or opinions, have been positive for market sentiment as the appointees are promoting lower regulations, domestic manufacturing, and added M&A activity.
The above graph shows which sectors have outperformed since the end of the third quarter of the year.
Since September, consumer discretionary stocks XLY 0.00%↑ ETF has outperformed boasting over 20% gains. Companies like AMZN 0.00%↑ , HD 0.00%↑ , LOW 0.00%↑ , MCD 0.00%↑ , and SBUX 0.00%↑ are all included in this ETF.
Some beaten down companies like the consumer staples XLP 0.00%↑ , have only gained 1.69% the last three months but could present better buying opportunities. Many companies like PG 0.00%↑ , COST 0.00%↑ , WMT 0.00%↑ , KO 0.00%↑ , and TGT 0.00%↑ are all included in this ETF and many pay strong growing dividends.
What Happens in a Tariff Scenario?
The constant point of contention with the new Trump administration is the fear of tariffs impacting pricing of goods for Americans. Trump has mentioned a 25% tariff on inbound products from Mexico and Canada, with up tariffs up near 60% on goods coming from China.
A 60% tariff from Chinese imports would be painful for the US. Most of the US businesses would plan to pass through the price increases, in which case demand would fall from higher prices. For example… a pair of Nike shorts are about $60 today being manufactured in China. A 60% tariff passed-through to consumers would result in a sale price just under $100 a pair. I don’t know about you, but I am not buying a $100 pair of shorts. If others are like me, Nike will face some serious issues with falling demand because of their high prices. If sales fall, so do expectations on future earnings which cause the stock price to fall NKE 0.00%↑ .
If Nike was to comply with Trump’s ultimate goal of moving back into the US, they would go from paying Chinese workers next to nothing, to paying American factory workers at least minimum wage. There are further operating and regulatory expenses that would be baked into the new price of goods as well. Even if manufacturing comes back to America, prices will remain elevated. The best thing that can come from tariffs would be restructuring trade agreements such as the USMCA agreement (US Mex Can).
How I am Investing
Lastly, I will include a link to an article I wrote HERE about how I am approaching investing for my family.
Thank you for tuning in this week. Reach out anytime!