Good Tuesday AM from your Hometown Lender,

Lots of volatility as we have come to expect of late.

Typically, we are digesting and reacting to data. We now have to react to the triple threats of political and economic commentary, new or changed policies (tariffs, spending, DOGE, Ukraine, Israel, Taiwan, etc…), and of course economic data. We are seeing some wild swings but markets have settled (and the President confirmed over last weekend), on the fact that there is going to be some pain to come.

Equities are in correction territory and have given back all gains since the November election.

Bonds have done well but face some technical headwinds as we cannot break below this pesky line of resistance of 4.20% on the 10yr note yield to allow for a run lower in rates. The big data this am was the JOLTS report which came in showing a bit stronger labor market than was forecast.

Bonds are also getting some shakeup from President Trump’s order this morning for his administration to raise tariffs on Canadian steel and aluminum by an additional 25%, bringing the total to 50% in response to Ontario’s government slapping a 25% tax on electricity exported to the U.S.

Volatile for sure.

We are hearing a lot of the R word again. Typically when people start talking about recession, it is too late. I don’t think it is a bad idea to lock and float down.

Below is a good excerpt from the WSJ this morning. Some kernels here for sure.

Ronald Reagan joked in 1986 that the nine most terrifying words in the English language are: “I’m from the government and I’m here to help.”

Now, though, Wall Street’s dyed-in-the-wool capitalists are spooked by the opposite. Washington having their back when things get really ugly has been an article of faith since shortly after Reagan’s speech. In the wake of 1987’s stock-market crash, the Fed prevented it from causing a recession and the White House set up the Working Group on Financial Markets, better-known as the “Plunge Protection Team.”

When Donald Trump took office seven weeks ago, investors felt reassured by a president who viewed the Dow as a personal report card, tweeting about stocks 156 times during his first term, according to strategist David Rosenberg of Rosenberg Research. Trump unleashed massive economic stimulus after stocks plunged in 2020, helping make it the shortest bear market ever.

Suddenly, though, a slump arguably worsened by his confusing tariffs is being treated like something best allowed to run its course.

“You can’t really watch the stock market,” said Trump to Fox News over the weekend. Treasury Secretary Scott Bessent told both Wall Street and Main Street that they need to sober up:

The market and the economy have become hooked, become addicted, to excessive government spending, and there’s going to be a detox period.

Other presidencies have begun with stock routs—Barack Obama’s first term, for example. George W. Bush started off even worse, but both were elected during bear markets.

If the current selloff becomes one—the unofficial definition is a drop of 20% from a peak—then the odds of a bear market sparking a recession have never been higher. A high share of household wealth is in stocks and is uncomfortably concentrated in the hardest-hit tech names (the Magnificent Seven already are in a bear market). Nearly all U.S. consumer spending growth lately has come from the wealthiest 10% or so of Americans—people most likely to own investments.

“We have already lost the low-end consumer and the middle-class, so if the stock market causes the high-end to pull back, we will be in for the mother of all consumer-led recessions,” warned Rosenberg.

So why is the White House acting so nonchalantly? One theory: They know that upending the international order will hurt and would rather get the market pain over with quickly.

The first years of presidential terms are historically the worst for the stock market in part because of bitter medicine and broken campaign promises. Voters have short memories. If stocks and incomes are rebounding as soon as crucial midterm elections in 20 months then the gambit might work.

Or it might not. Both the bunny hill and a double black diamond get you to the ski lodge, but you’re more likely to break something on the latter.

One pressure point is the Treasury market. Even without immediate stimulus spending to soften the slide, a recession could cause a record budget deficit to balloon by pinching tax revenue. The bond market has almost always acted as a cushion during stock selloffs, aiding investment portfolios and stimulating housing.

The effect could be dampened by nervousness about Uncle Sam’s finances, or even a debt downgrade. That could make a later decision to loosen the fiscal spigots and revive the economy trickier.

America really is addicted to spending, but an unexpected trip to rehab might be longer and more expensive than the Trump team is counting on.

Stay safe and make today great!