Weekly Wisdom – January 23, 2025

By Hightower Great Lakes on January 23, 2025

Increased Volatility May Be the New Norm

Donald Trump was sworn in as the 47^th president of the United States on January 20^th. He took no time waiting to pass new executive orders, signing roughly 200 new orders in a span of just a few hours.

From tariffs and energy policy to withdrawing from the World Health Organization, headlines began moving markets Monday evening and into Tuesday morning. As expected, the proposals and signings were very quick, and volatility was likely given the headlines.

Tariffs were not the highlight of day one, but they are still on the agenda. When they do come, we can expect more volatility. This is a key reason to focus on company fundamentals in both the bond and equity markets, and we are watching credit spreads as well.

The energy market will also see volatility, especially if prices correct as the administration hopes. More drilling means more profit for oil services companies, and we expect Schlumberger (SLB) to benefit from this development. Lower oil prices equate to lower inflation, a positive for the consumer which makes up 75% of the U.S. economy.

Regardless of the volatility, we remain focused on our many long-term themes and opportunities that arise in these moments – such as the recent sell-off in United Health Group (UNH), which provided a contrarian buying opportunity for us.

Trump Day One and Two

Trump signed many new orders on Monday, but our focus remains on the ones that have implications for the markets. Surprisingly, tariffs were not on the agenda for day one.

He also neglected to discuss tax cuts, which is a big goal for his administration. Trump’s inaugural address spoke on American independence and immigration efforts more than trade and tariffs.

During the address, Trump mentioned his plans to overhaul the global trading system to protect American workers and families, including establishing an “External Revenue Service”.

Trump spoke to the press later in the evening, stating that the administration is thinking about 25% tariffs on Mexico and Canada with a possible start date of February 1, 2025.

The comments pushed the Mexican Peso and Canadian Dollar lower, with both falling as much as 1.4%. Regarding China, Trump stated that he may decide to use tariffs as a tool to make a deal for TikTok, but did not state anything more than that (he previously mentioned increasing current tariffs by 10%).

25% tariffs on Mexico and Canada would likely come with pushback, as Mexico’s exports to the U.S. account for more than 25% of the country’s GDP.

Until more is known regarding tariffs, markets seemed pleasantly surprised with less-than-expected tariffs on day one. Tariffs remain a wildcard but will likely still be implemented over the coming months.

Charts 1 & 2: U.S. Imports from Mexico and Canada are Heavy in Minerals, Machinery, and Automobiles[1]

Trump’s new agenda on energy policy rescinded many of Biden’s EPA regulations including power plants and electric vehicles, paused offshore wind development, and emphasized domestic production and exploration as well as LNG exports.

He also revoked offshore oil and gas leasing bans that had effectively blocked drilling in most U.S. coastal waters. He expects the U.S. to stop buying oil from Venezuela and reiterated a call for the European Union to buy more American oil and gas to avoid tariffs.

Additionally, Trump mentioned he plans to refill the Strategic Petroleum Reserve (SPR) “right to the top”. During his address, Trump stated he will “bring prices down, fill our strategic reserves up again right to the top and export American energy all over the world.”[2]

The SPR is currently at 394.4 million barrels, below its maximum capacity of 700 million barrels. The Biden administration sold ~180 million barrels into the global market to bring down gasoline prices following Russia’s invasion of Ukraine. Crude prices declined on the news, and energy was one of the worst performing sectors on Tuesday.

Tariffs and energy policy aside, Trump remained focused on immigration and national security. He declared a national emergency at the U.S.-Mexico border and sent additional aid to the border, among other measures.

On Tuesday afternoon, Trump announced a new private sector investment worth billions of dollars to build artificial intelligence infrastructure in the U.S.

OpenAI, Softbank, and Oracle are planning a joint venture called “Stargate”. The companies are expected to initially commit $100 billion and invest up to $500 billion over the next four years.

Bond prices rose and the U.S. dollar declined, as fears of widespread tariffs dissipated for now. Overall, headlines are likely to create volatility in markets over the next four years.

We remain focused on our long-term themes and look to add during any short-term weakness. The U.S. economy, consumer, and corporations are in a bright spot, and we favor the 2025 outlook.

Click here to read last week’s Market Note (1/16).

Disclosures

Investment Solutions is a group comprised of investment professionals registered with Hightower Advisors, LLC, an SEC registered investment adviser. Some investment professionals may also be registered with Hightower Securities, LLC, member FINRA and SIPC. Advisory services are offered through Hightower Advisors, LLC. Securities are offered through Hightower Securities, LLC.

This is not an offer to buy or sell securities. No investment process is free of risk, and there is no guarantee that the investment process or the investment opportunities referenced herein will be profitable. Past performance is neither indicative nor a guarantee of future results. The investment opportunities referenced herein may not be suitable for all investors.

All data or other information referenced herein is from sources believed to be reliable. Any opinions, news, research, analyses, prices, or other data or information contained in this presentation is provided as general market commentary and does not constitute investment advice. Investment Solutions and Hightower Advisors, LLC or any of its affiliates make no representations or warranties express or implied as to the accuracy or completeness of the information or for statements or errors or omissions, or results obtained from the use of this information. Investment Solutions and Hightower Advisors, LLC assume no liability for any action made or taken in reliance on or relating in any way to this information. The information is provided as of the date referenced in the document. Such data and other information are subject to change without notice.

This document was created for informational purposes only; the opinions expressed herein are solely those of the author(s) and do not represent those of Hightower Advisors, LLC, or any of its affiliates.

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[1] Source: Bloomberg. As of January 21, 2025.

[2] Source: Bloomberg. As of January 20, 2025.

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