Nobody Knows
Normally, we think we know what the future looks like. Right now, however, the range of possible outcomes is beyond what anyone was contemplating just one month ago. Typically, humans extrapolate from the recent past to form a judgment about the future, and this view usually doesn't change much, or if it does, it does so slowly. The last 80 years have shown increased global trade, and with that, global growth and wealth. There were bumps along the way and disagreements over policy, but businesses built highly integrated systems to squeeze every advantage they could to advance their shareholders’ wealth.
Presently, the U.S. Administration wishes to substantially change this system. This has caused massive turmoil in global markets, marked by tremendous volatility and wildly gyrating prices. On April 7, 2025, the largest companies in America moved 9% in 15 minutes based on a false press report stating that US tariffs were to be paused. Christine Poole and I have witnessed the 20 most volatile trading days in history, and this ranks as number 2 in my 40-year career.
What everyone knows:
Every company that sells to consumers or enterprises is now considering a recession and inflation, and this will change how they think about budgets. Any company that imports anything now, at a minimum, has to spend a lot of time thinking about ways to avoid these tariffs, wait them out, or wonder how much they can raise prices. This inherently means doing things that are more expensive and less efficient than they would be doing without the tariffs—or they would already be doing them.
The reasons for these massive gyrations are numerous but, in the end, come down to the fact that nobody knows what will happen next. Investors are grappling with the political, economic, and business consequences of this change. Some investors are prone to shooting first and asking questions later. Suffice it to say, the biggest investors in the world are mostly sitting on their hands and maintaining their portfolios. We think you should too.
Right now, the question is: are prices down too much, just right, or not enough? We will only know in hindsight when panicked sellers have exhausted themselves, prices reach a level where they are no longer willing to sell, or buyers find bargains too great to resist and overwhelm sellers. As I have said before, in the short term, the stock market is a voting machine, and those who choose to show up at the stock market store are selling merchandise at increasingly lower prices. Their pessimism and the volatility they are causing are highly characteristic of market bottoms.
The type of volatility present is far greater than the change in the real values of the companies you own. There is not a logical reason in the world for the whole stock market to go up or down by 9% in 15 minutes that makes any sense. How could there be, because nobody knows the outcome or the duration of this moment.
Some people take the stock market change as a signal for what a company is worth. At times like this, all it tells you is how low some are prepared to mark down their merchandise to find a buyer. These are unsettling times, but we have every confidence that all will be well. Panic selling usually does not last long. Things will improve.
John O’Connell CFA CEO
Davis-Rea Ltd.
