Have markets moved on from tariffs?

Key Concepts

• Tariffs: Taxes imposed on imported goods, impacting trade and market pricing.
• CapEx Cycle: Capital Expenditure cycle, referring to business investment in fixed assets (like property, plant, and equipment) – a key indicator of economic growth.
• Yield Curve: A line that plots the interest rates (yields) of bonds having equal credit quality but differing maturity dates.
• Accommodative Monetary Policy: Central bank actions to increase the money supply and lower interest rates to stimulate economic activity.
• Risk Premium: The extra return investors require for taking on risk, particularly in volatile situations like geopolitical instability.
• Fiat Currency: Government-issued currency that is not backed by a physical commodity like gold.
• Debasement of Currency: Reducing the value of a currency, often through increased printing.

Market Exhaustion & Tariff Impact

Nate Toot of Manual Life Investment Management believes the market has largely absorbed the impact of the ongoing US-China tariff situation. While President Trump’s recent setback in the Supreme Court and proposed 15% levy on imports are noted, Toot argues the current tariff levels are lower than peak levels discussed last year. He states, “the worst of the pricing of tariffs happened last year and is unlikely to be the case this year.” The market is therefore not anticipating a return to the highest tariff rates previously threatened. This suggests investor fatigue with the topic and a pricing-in of potential risks.

Nvidia & Earnings Season

The upcoming earnings report from Nvidia is highlighted as a significant event for the week. Nvidia, representing approximately 5% of the global equity market, is seen as a crucial indicator of the capital expenditure (CapEx) cycle and the health of the Artificial Intelligence (AI) sector. Expectations are high, with projected earnings growth exceeding 70% year-over-year. However, Toot emphasizes the importance of Nvidia’s outlook for continued growth over the next 12 months, noting the company’s history of exceeding expectations.

Fixed Income & the Yield Curve

Toot discusses challenges in the fixed income market, specifically regarding longer-term government bonds (tracked by the ETF TLT). While central banks are expected to lower interest rates (an “accommodative” monetary policy), this primarily affects the short end of the yield curve. Concerns about long-run inflation and fiscal spending are causing reluctance to hold longer-term debt. He predicts a “steepening of the yield curve,” meaning the difference between long-term and short-term rates will widen. He recommends investors focus on the “belly and inward” – the middle and shorter end – of the yield curve, avoiding excessive duration (exposure to longer-term bonds).

Profit Growth as a Tailwind

Despite geopolitical risks (Iran, tariffs, etc.), Toot identifies strong US profit growth as the biggest positive factor for equity markets. He anticipates earnings growth exceeding 10% year-over-year globally, including a potential 15-20% growth in emerging markets. This broad-based earnings growth across countries, sectors, and companies is seen as a significant tailwind for the remainder of the year. He states, “We still believe this year will publish despite all the geopolitical risks…we are very likely to see earnings growth in excess of 10% year-over-year.”

Geopolitical Risks & Energy/Metals

Geopolitical dynamics, particularly the situation in Iran and its potential impact on oil supply, are a key concern. Unlike many geopolitical events that markets quickly absorb, disruptions to oil supply pose a more significant risk, potentially leading to a “risk premium” being priced into oil markets (as seen in the recent price increase). A further disruption could push oil prices even higher, impacting inflation and overall market sentiment.

In response to these risks, Toot’s firm is “overweighting” precious metals (gold and silver), believing geopolitical uncertainty provides a floor and potential upside. They also favor energy stocks in the short term, anticipating potential gains from rising oil prices, but maintain a longer-term bias towards gold and silver. He notes, “we like energy stocks in the short term and in the longer term bias we like gold and silver related assets.”

Optimism on Gold Prices

Despite recent gains, Toot remains optimistic about gold prices. He cites several supporting factors: inflation uncertainty, geopolitical concerns, the “debasing of fiat currencies,” and continued strong fundamental drivers. He believes these factors will continue to support a “strong bid” under the price of gold throughout 2026 and beyond.

Logical Connections

The discussion flows logically from a broad overview of tariff impacts to specific sector analyses. The initial point about market exhaustion with tariffs sets the stage for a more nuanced discussion of earnings, fixed income, and geopolitical risks. The analysis of energy and metals is directly linked to the geopolitical concerns raised earlier, demonstrating a cohesive understanding of interconnected market forces. The final section on gold prices reinforces the theme of safe-haven assets in a volatile environment.

Conclusion

Nate Toot presents a cautiously optimistic outlook for equity markets, driven primarily by strong underlying profit growth. While acknowledging significant geopolitical risks, he believes the market has largely priced in the tariff situation and is focusing on earnings potential. His firm is strategically positioned to benefit from both potential upside in energy and the safe-haven appeal of precious metals, while advocating a cautious approach to longer-term fixed income investments. The key takeaway is that despite global uncertainties, strong earnings growth remains the dominant force supporting equity markets.