We haven’t seen the full effects of the 10% tariffs, the Chinese embargo, or the uncertainty in the economic data.
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The 25% auto tariffs on Canada and Mexico haven’t kicked in. Canada and the U.S. have a deeply integrated auto supply chain.
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Trump firing Powell before the 2026 midterms is still possible. He believes he can. If the economy starts to weaken—which it likely will—Trump will blame Powell. Either Powell caves, or he gets fired. Either way, it adds pressure on the dollar.
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We haven’t seen the impact of Canadian, Chinese, and European boycotts of U.S. travel. Tourism makes up 3% of GDP.
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A continued selloff in bonds and weakness in the dollar could drive yields higher and shake market confidence, increasing inflation.
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The economic impact of falling immigration still hasn’t been fully priced in. You can’t have earnings growth without GDP growth, and you can’t have GDP growth without population growth.
From 1995 to 2022, immigrants and their children accounted for 70% of labor force growth. In the last two years, they accounted for 100% of working-age population growth. Without them, the working-age population will fall by about 6 million in the next two decades.
Source: Cato Institute testimony
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Federal layoffs haven’t shown up in the data yet. This includes not just federal employees but also contractors and related services.
There’s still much that hasn’t been priced into the market. Part of this is due to high valuations. The S&P 500’s P/E ratio is still 26x trailing earnings. The historical mean is 16x.
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