Valuations? We’re Talking About Valuations?

There is a lot of debate happening right now, largely along partisan lines, about whether tariffs are inflationary.  Market participants in support of the President-elect are loudly making the case that the example of the tariffs of 2018 prove that tariffs are not actually inflationary.  The Fed Staff and the economics team at Goldman Sachs have empirically demonstrated those claims to be misleading at best. The chart below from Goldman illustrates the reality of what happened last time around.  The chart shows that while broad measures of inflation showed little impact, the industries impacted by the tariffs saw meaningful inflation.

"Whether or not you think there will be real NEED for companies to pass through a tariff or not, that is secondary to whether or not they CAN. What the study informs us is that if they can, they will." - Tim Pierotti

In the wake of the recent “Red Wave” election results, one might be wondering if there are any restraints on the incoming administration. Republicans will control the White House and both the House and Senate. The Supreme Court is controlled by conservatives who have expressed an unprecedented view of the “Unitary Executive”. In some regards those concerns may be justified and we are likely to see a White House that is unrestrained relative to history. But when it comes to the economy, this administration will still have to answer to a higher authority: the bond market.