Days of Our Lives

Daytime soap operas have not been the same since “Days of Our Lives.” Known for its controversial subjects, it aired from 1965 to 2022. Today’s political news cycle continues to be a running soap opera of sorts.  Wave after wave of news makes you want to shelter from exhaustion.  The key to managing is to focus on the important issues.  From an investment standpoint, the most important matters include economic growth, government spending, and inflation. 

First, economic growth provides the context for corporate profits and sales, and vice versa. After almost four months under the new tariff policy, we are nearing a point where these new policies will start to affect growth. Some predict an economic slowdown in the second half of the year. Others think tariffs are a one-time adjustment to our economy. More optimistic commentators suggest the threat of tariffs is only a big stick to bring our trading partners to the negotiating table. 

Second is government spending – the topic du jour of the news cycle. Keep a close eye on the “One, Big, Beautiful Bill Act” now being debated in the Senate and already approved by the House.  Expect some revisions to the House version. Forget all the rhetoric and soap opera antics of Musk versus Trump and focus on whether Washington starts reining in its deficit spending.  Borrowing more will only lead to greater economic challenges and higher real rates. Bringing down our spending will help stabilize and normalize long-term rates. If we don’t address our fiscal responsibilities, the financial markets will eventually react negatively.

Third is inflation, a topic that is simmering. So far, our Federal Reserve, and Chairman Powell, seem to be slow and steady in terms of monetary policy. They have already lowered rates somewhat and are now following a “wait and see” approach before making any further rate cuts.  I suspect Powell does not want to make the mistake taken in the early seventies when the Fed eased too early and saw a second wave of inflation. Unlike the Musk-Trump duel, the Trump-Powell duel will be one-sided. Powell will try to ignore the noise but will probably become a lame duck as he approaches the end of his term. The leak this week that there was an emerging camp within the Fed willing to ease sooner is a sign that some are willing to compromise Powell’s apparent consensus. I hope Powell will not wilt under pressure since the long-term interest rate market will look unfavorably on easing, which is not justified by economic conditions.

Back in 1872, Barnum and Bailey created the “three-ringed” traveling circus. Previous traveling circuses only had one ring. Barnum and Bailey coined their three-ring circus “The Greatest Show on Earth.”  Expect our news cycle to have a lot of entertainment value within the ‘three investment rings’ and keep your eyes focused on what matters rather than the hype.

Gary B. Martin