​It’s now March 10, 2025 and anyone watching the markets and their accounts are either starting to get nervous or have been for a little while.  The Trump Administration has added tariffs to Europe, China, Canada and Mexico.  It has also pushed back tariffs by a month and had (a few) carve outs.  But the messaging hasn’t changed from President Trump – tariffs are good for America.  This is the second blog I have written on tariffs this year, and Brandon and I have also done a podcast on them.  Yet for all the talk and fear, there is still no clarity about what the effects of this round of tariffs will be.  This is because there is no clarity regarding the goals of the tariffs.  Here are 4 possible scenarios that I see in the coming months.  These are taken from an email I sent to a client who was asking about the market volatility and tariffs.
 
Scenarios:

1. There is no real plan from this Administration, just a desire for a showing of strength to bring jobs and manufacturing back to the US.  If this is the case, there will be pain in the short term as tariffs are not viewed by the Administration as a bargaining chip but instead a means to force companies to do its bidding.  This will cause massive disruption in the economies of both the US and our trade partners.  This will also cause both Republican and Democratic elected officials to put severe pressure on Trump to change tactics since many of the manufacturing companies couldn’t adjust their production and workforce in any sort of a short term.  How does this end?  I don’t know, but the politics would be brutal for all involved.  In this scenario, you would want to be invested in high quality companies that are not heavily dependent on international trade.  You would want to be invested in companies that are already producing a large % of products domestically. 
2. The tariffs are designed to create short term pressure on Canada and Mexico, while putting more severe pressure on China and the European Union (both of which have significant tariffs against US goods and have for decades).  In this scenario, Canada and Mexico would have to adjust significantly faster than the US because we are the largest market for their exports.  While there are significant issues where goods cross the borders multiple times prior to final sales (cars), the tariffs would hit the economies of those trade partners sooner and deeper than retaliatory tariffs would the US.  The long-term effect on Europe and China is unknowable right now, but again we are the largest consumer of Chinese goods and their economy is hurting far more than ours at present.  In this case you would want to be invested the same way as Scenario 1 but be ready to shift into some companies and sectors that could see a short-term drop but a quick rebound.  We are ready for this.
3. There doesn’t seem to be any economic plan for the short/long term and the market responds by dropping 20%+ and the analysts and talking heads are screaming about the next “market crash.”  This scenario is an emotion-based situation that I can easily see happening.  However, the fears about the market “crashing” don’t scare me because the fundamentals don’t back it up.  The tariffs are not something I am in favor of, but they are also not crippling enough to damage North America’s economy to the point of a market crash.  Most companies that will be affected have already been dealing with tariffs since Trump’s first term (Biden never reduced those tariffs) and have the ability to respond – maybe not quickly enough to stave off a drop in stock price, but they won’t go out of business either.  An example of this situation is NVDA.  Two weeks ago, NVDA beat analysts’ earnings expectations (and they were extremely high) and the stock still dropped double digits.  But NVDA’s earnings proved that there is not a doomsday coming for the company, which could indicate a buying opportunity.  In this scenario you would want to be invested like in Scenario 2.
4. The tariffs and retaliatory tariffs create an immediate sit down with leaders of our trade partners where they swiftly come to agreements on how to move forward.  The short-term drop in the market is quickly changed to upward momentum – not for every company or sector but for those areas that are not going to be as negatively affected.  This is exactly what happened during the first Trump term.  In this case you would want to be ready to buy specific companies who’s share price dropped but will benefit from the lack of a trade war.  We are ready for this.

 
The bottom line is that while we are not enjoying the market volatility and the potential for a large disruption in the economy, we are ready to adjust to the market each week and month.  We don’t allow politics to determine investment policies, but we are very aware of the impact it has on our clients.  We want to make sure we help ease fears while not creating new ones.
 
 
Written by Sean Budlong, CFP®, AAMS, Chief Executive Officer, Majestic Financial, Financial Consultant, RJFS
 
*Disclosures: Any opinions are those of Sean Budlong and not necessarily those of Raymond James. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation. Every investor's situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct.

Have you or anyone close to you gone through a late in life career change?  I’m not talking about a job change, but a career change.  You spent 25 years working for a bank and now you run a kitchen remodeling company.  You taught elementary school for 30 years and now you bake cupcakes out of your kitchen for weddings/graduation parties.

What are the chances that the skills needed for the new career suddenly blossomed at age 55?  For decades you enjoyed baking and everyone told you that you should sell your cupcakes…and one day you decided that you agree – and you took the leap.  And while you began by selling to your friends and former co-workers, it didn’t take long before they were referring others to your website.
Sounds easy, doesn’t it?  But anyone who has lived through this change knows how challenging it is to create success in a new career after decades performing other work.  There are the emotional costs of leaving security (salary, title, desk) behind.  There is the fear of failure and losing touch with co-workers who may feel like family.  And there is the actual $ costs of starting a new business. 

This is true for large, publicly traded companies and even countries.  We are seeing the effects of this as the world adjusts to both new governments and life after COVID.  As investors, we need to be aware of both the challenges and potential rewards when buying into these opportunities.
Here are two examples:

In June of 2024, The Detroit News reported that GM reduced its 2024 EV production goals by at least 50,000 units.  This was while the Biden Administration and certain states were still pushing for the eventual elimination of gas-powered vehicles.  The reduction in production was due to a variety of reasons – consumer demand, production costs, and a potential change in government policies (which ended up happening when Donald Trump won November’s election).  As an ecologically aware investor, this may disappoint you.  As an investor more concerned with profitability, this would excite you.  At the time of the announcement, GM shares hovered around $48/share.  As of 2/25/2025, GM’s share price is $46.  This is an example of a company attempting to change its identity from 100+ years of gas powered to electric vehicles in a relatively short time.  And it turned out that its consumers were not completely ready for the change.  But just when the investors could get ready to cheer (November 2024 share price high of $59.63), President Trump began to create tariff uncertainty that exists today.  GM has a lot of upsides, and a lot of potential downsides.

Starbucks is one of the most well-known companies in the world, and it seems to exist on every corner.  For a company that theoretically sells a commodity (coffee), it has had decades of growth and is woven into the fabric of the coffee drinking world.  The company had explosive growth in employees and physical locations throughout the early 2000’s and expanded dramatically overseas as well.  When COVID hit, the stores were shut down for almost 5 months and opened up to drive thru business in June of 2020.  In July of 2020, Starbucks’ stock price was $126/share.  Only 4 ½ years later, the company announced layoffs of over 1100 employees as it restructures the company and menu.  The change in momentum comes from multiple issues.  First, the company’s locations went through multiple changes over the years from a place to get a cup of joe to political hotspots, from a quick stop for a drink and a pastry to a workspace, and from employing college students to being organized by labor unions.  Second, consumers in other countries began frequenting companies that were more in tune with local tastes – China is a country that had a significant reduction in revenue for Starbucks.  Finally, the inflation that hit the US had an impact on how much consumers were willing to pay for a coffee.  How will Starbucks look after trying to return to its roots?  Will this be a boom or a bust for investors?
​
In business, as in life, change is constant.  As an investor, you must be aware of the potential opportunities and pitfalls of companies.  It’s not enough to look at current or historical returns.  Evaluate why those returns occurred and does the risk involved in achieving those returns match your tolerance.  Let us know what questions you have about individual investments.  Let us do the research and help you make decisions.  There’s nothing wrong with a company making a leap of faith and changing their business.  The question is whether you want to leap with them.
 
Written by Sean Budlong, CFP®, AAMS, Chief Executive Officer, Majestic Financial, Financial Consultant, RJFS
 
Disclosures: Any opinions are those of Sean Budlong and not necessarily those of Raymond James. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation. Every investor's situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct

“THE TARIFF WAR HAS STARTED!  American consumers are going to go broke paying higher prices and inflation is going back up to Biden Administration levels!”

Ok, maybe this is overstating what’s going on.  It could also be downplaying the benefits that could be generated by the current sporadic trade policy of the Trump Administration.  There is no guarantee of any specific outcome at this time – other than we are in for another wild 4 years.  With this in mind, let’s take a deeper dive into tariffs – what they are, why they are used and potential pro/cons of these strategies.  Brandon and I will be doing a podcast on this same topic next week.

The Oxford Dictionary defines a tariff as “a tax or duty to be paid on a particular class of imports or exports.”  There are two types of tariffs; 1) Specific – a fixed fee based on an item ($500 levy on each car) or 2) Ad Valorem – a levy on the value of the item (a 25% tariff on import value = $4 item means $1 additional tax).  The most basic strategy is to increase the price of goods/services purchased from another country, making these goods/services less attractive to domestic consumers which would theoretically increase the production of these goods/services by domestic companies.

Sounds straight forward, right?  The US imposes tariffs to encourage domestic production and increases manufacturing jobs and wages for US citizens while increasing tax revenues from foreign companies.  In a perfect world where the US can produce all natural resources needed for the creation of the goods/services demanded by US citizens the use of tariffs would work this way.  However, we don’t live in this perfect world.  Thanks to technology, the world economy is more intertwined than it has ever been.  When you go to Amazon and order an item, it might take you (literally) 5 minutes to shop/order/pay – and less than that if it’s a repeat item – without ever leaving your kitchen.  Few consumers research the origin of the item beyond the price and potential quality.  This has created a consumption economy that depends on goods being created throughout the world but available 24/7 for next day delivery.

So how does a tariff work in this imperfect world?  First, understand that the rest of the world has had tariffs on US goods for decades.  China has imposed tariffs on over $110B out of the annual $131B US goods imported into their country.  The EU?  According to TARIC (the EU Taxation and Customs Union) there are over 58 classifications of tariffs on foreign chemicals (pharmaceuticals) and 200+ on animals/animal products alone*.  So, prior to Trump’s imposition of new tariffs, US companies were already limited by the strategy of making US goods less attractive to local consumers.  A few reasons the tariffs haven’t created constant trade wars are that there are usually carve outs for essential industries, some goods/services are better produced near to the resources needed for production, and cost benefits of offshore production can make up for the increased tax burden.

An example of the integration of economic activity is crude oil traded between the US and Canada.  While the US became “energy independent” in 2020, we still import crude from our Northern neighbors.  The oil the US produces is lower density (sweet or low sulfur) grade crude, which is easier to refine and commands a higher price overseas.  American refineries are tooled to process heavier/dirtier grades of crude produced by Canada.  US refiners could reconfigure facilities, but the costs of downtime and capital would be extreme.  It is simply cheaper and more profitable to import the crude from Canada and export the crude produced domestically.  How high would the tariff have to be to make it beneficial to change US refineries, and at what cost to consumers?

How does all this play into the current “trade war?”  Potential benefits to the tariffs imposed by Trump could be more domestic manufacturing, higher tax revenue from foreign parties, and a stronger US dollar.  Potential consequences are higher costs to US consumers, increased inflation, and more geopolitical chaos.  Currently, when GM makes a single car, it may cross the US/Canada/Mexico border multiple times during production without tariffs being imposed.  If the 25% tariff goes into effect, each crossing of the border would increase the price of the car to end buyer.  Will consumers pay more for the exact same car for a theoretical perfect world of complete domestic production?  Does GM have the capacity to build the car completely in the US?  Many companies did bring some production to the US after the tariffs during Trump’s first term but not all.

Financial analysts have no more certainty than the average investor.  Some believe the entire “trade war” is a bargaining tool to improve US trade positioning.  It is true that China puts extreme pressure on other countries by creating cheap exports while increasing costs on imports.  Will new tariffs open that market more than those that have been in place for years?  Are Americans willing to pay more for a happy meal while we find out?

In any case, investing in quality companies that have the financial ability to make it through this uncertainty is more important than trying to be right on all of the potential issues.  We plan on being flexible in our investing to take advantage of opportunities, but we are not willing to increase the risk to clients without corresponding benefits.
 
Written by Sean Budlong, CFP®, AAMS, Chief Executive Officer, Majestic Financial, Financial Consultant, RJFS
 
Disclosures: Any opinions are those of Sean Budlong and not necessarily those of Raymond James. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation. Every investor's situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct.
*Source (AP News, “China counters with tariffs on US products”, 2/4/2025)

It is now December 3, 2024.  Another Detroit Lions victory over the Chicago Bears and Michigan victory over Ohio State in the books.  It’s also post 2024 Presidential Election to End All Elections.  Heading into November’s election, I repeatedly wrote about the fact that while pundits always create fear, nothing seems to really change in the world.  So, what should we expect now that Donald Trump was elected President with a Republican Congress?

First, to sound like a broken record, we have seen this before.  When Trump was elected President in 2016, he had a Republican House and Senate.  He promised to shake things up, and immediately took on Obama Care and tax cuts.  While tax rates were cut for the first time since the mid 1980’s (taxes have changed many times, but the brackets very seldom go down), the elimination of Obama Care never materialized.  The S&P 500 rose from 2195 in November of 2016 to 2911 in August of 2108 – a 33% increase.  By December of 2019, the S&P was at 3226 (47% gain).  Tax cuts and lower regulations were having a positive effect on the economy.  However, not all was wonderful.  Tariff battles created issues in sectors of the economy such as agriculture and manufacturing.  Most of the tariffs that were imposed by Trump were kept in place by the Biden Administration.  While the overall economic conditions were strong during the first Trump Administration, they could have been better if not for the effects of the tariffs.  The pandemic created the chaos that drove the economy down, and I won’t go into the politics of that situation.

As Ronald Reagan once said, “here we go again.”  President-elect Trump is threatening to levy 25% tariffs on both Canada and Mexico as well as an additional 10% tariff on all Chinese imports.  He is insistent that he will lower taxes, reduce inflation, eliminate government waste, and end the wars in Ukraine and the Middle East.  Let’s be honest, this is a lot to do in January.  Even with Elon Musk helping, some of this may not get completely done.

So, if we assume a similar strategic plan as his first term, we can assume that regulations will not increase even if the bureaucrats in DC fight to keep current ones in place.  Inflation is already easing, and while interest rates are not declining quickly, they are moving in a downward direction.  All of this is positive news for the business community and the markets.  Does this mean that we should expect a jump in the S&P 500 so we should buy in?  Well, the S&P 500 is up 26.54% YTD as of the writing of this blog (9% since election day) so if you have been sitting on the sidelines in cash you may have already missed a little of the ride. 

Just like Obama Care stymied Trump, so will his tax promises.  The 2017 tax cuts are still in place, and he’s promised to eliminate taxes on tips and social security.  If those pledges are honored, the best we could hope for would probably be an extension of the 2017 tax cuts, not new reductions.  While Canada and Mexico have already started negotiating with Trump, China has not.  A new trade war could dampen any short term gains we have seen in the market.

What is the plan, then?  We will invest in quality companies in sectors least likely to be affected by the whims of politicians.  We will continue to look for opportunities that help clients achieve their financial goals.  And we won’t over-react to situations we have all seen before.  Except for the Lions – we have never seen an 11-1 record.  Merry Christmas and Happy New Year!

Written by Sean Budlong, CFP®, AAMS, Chief Executive Officer, Majestic Financial, Financial Consultant, RJFS
 
*Disclosures: Any opinions are those of Sean Budlong and not necessarily those of Raymond James. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation. Every investor's situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

We are now entering the busy season.  School is back in session, and even if you don’t have school age children (I don’t) roadways have a different feel a couple of times per day.  For many of us, our schedules are filled with football, baseball, cross country, soccer, and hockey/basketball starting soon.  We are also heading into the holiday season.  Finally, the weather is starting to change from the 80’s down to the 50’s – sometimes in the same day in Michigan.

At Majestic Financial, we also notice some changes in client comments.  Early in the year, we hear comments like “when will my tax documents be ready?”  Or “I need cash to pay for the Christmas presents I bought.”  One I particularly appreciate is “what do you think will happen in the markets this year?”  I could have hours of conversations about this topic.  During the summer, clients often start to evaluate the performance of their portfolio, hopefully with an understanding of what has been occurring in the market during the year.  We may have difficulty meeting with clients due to vacations and/or kids at home.  It’s in the fall that we start to hear comments like “I haven’t looked at my account for a while,” or “I’ve been too busy to look at what you sent me.”

Most people (including clients) would assume that if someone has money invested in the market, that person is watching the money like a hawk.  But in reality, most people don’t act this way (including many clients).  And often, it’s the November/December time frame that clients start to lose track of how their investments are performing.  I understand why this is – people are busy getting ready for a little time off, they may be traveling or having visitors, kids are getting ready for time off of school, it’s been a long year already, and they absolutely trust Majestic Financial (I especially appreciate this reason).

I’m writing this to ask our clients to not lose sight of three things: what was the purpose of the original investment(s), what is/has changed in their life, and how is their portfolio performing compared to the goals and the market conditions.  I want clients to pay attention to these items because they matter every day, every week, and every year.  That doesn’t mean I expect clients to track daily/weekly movements of their investments, but I would like them to know why an investment is soaring or why it’s flat – and how does that compare to what we would expect with that investment.  An example is over the past 3 years, interest rates have climbed and that substantially affects sectors of the market as well as fixed income investments.  If you only see the change to the values in these investments one time it may come as a large shock – you may be assuming that Majestic is failing in our fiduciary duties to you.  What you may not be aware of is the shifts of your money from long term bond funds to money market, or the sale of a bank stock and the purchase of a technology stock.  And as interest rates start to decline, these movements may reverse in your account.

Bottom line, enjoy football season, Christmas, tax season, the 3 weeks of summer in Michigan.  And please take the time to evaluate your portfolio along with your goals.
 
Written by Sean Budlong, CFP®, AAMS, Chief Executive Officer, Majestic Financial, Financial Consultant, RJFS

*Disclosures: Any opinions are those of Sean Budlong and not necessarily those of Raymond James. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation. Every investor's situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation.