Liberation day is here. We don’t know exactly what it means, but it looks like President Trump will announce the formal implementation of tariffs on trade with other countries. Uncertainty is now maxed out, and the market is anxious about the impact of those tariffs on companies margins. In the chart below, you can see the 12 month forward estimates of U.S. companies operating margins (orange line), versus the world ex-US (Blue line). During Trumps first term we saw what happened to margins when he implemented tariffs. It negatively affected all companies, both US and non US. Margins for U.S. companies are at historic highs, and probably can absorb the shock, but market valuations are also high, in line with those margins, and they may need to adjust lower, to cope with the friction tariffs will bring. One important note: credit spreads are starting to widen. Timidly, so far, but firmly. We’re playing with fire.
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