Its all a bit of a mixed bag

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An unusual event occurred yesterday as the Nasdaq tech index fell, while the S&P 500 gained overall, albeit modestly, as defensive stocks outperformed the broader market. The latest economic data reported that retail sales came in slightly weaker than expected, and producer prices fell more than anticipated, which, in theory, should support the idea that the Fed will cut rates at their next meeting. However, the market is becoming more sceptical and reining in the possibility that the Fed will act in June, as fears grow that many of the new administration’s policies may support growth but will also lead to a resurgence in prices. Walmart announced its results yesterday and warned of the impact of tariffs on prices.

In the short term, the focus will shift away from tariffs and onto President Trump’s “beautiful bill,” which, if passed, will add trillions of dollars to the nation’s already expanded debt load, which, at $36.2 trillion, now equals 127% of GDP. The package calls for $4 trillion in additional borrowing, although the cost remains uncertain—no wonder the dollar and US treasuries are under pressure. During the President’s last reign, we sort of saw the current playbook, which could play out again this time. Stocks rise on looser fiscal policy, but bonds sold off as well. There came a point when yields put the skids under equities; that’s why we must keep an eye on what the bond market is doing.

Today, my business partner is hosting his annual Frederick’s Day meeting. (https://www.fredericksfoundation.org/), A charity he started many years ago to help support young businessmen and women seeking a leg up on the often painful and arduous road to becoming entrepreneurs. On these occasions, Paul invites speakers to share their war stories: some from rags to riches, others still somewhere between the two. Attendees can discuss their experiences with other aspiring entrepreneurs and hopefully learn a few things along the way.

Paul has asked me to share my thoughts on the current state of the UK economy at today’s meeting. Despite much of the economic data suggesting the UK economy continues struggling, yesterday’s Q1 GDP report came in slightly better than expected. Services, which drive the majority of the UK economy, accounted for much of the growth in the first quarter. There was also an increase in exports, which may have been boosted ahead of the Trump tariff proposals. This estimate may be modified to the downside at some point. Industrial and Manufacturing production came in weaker than expected. The likelihood is that the Bank of England will cut rates further, which should help, but at best, the UK economy seems to be a mixed bag.