The fact that the US stock market have recovered all their losses after Trump set aside most of his tariff was a knee-jerk reaction because American investors just don’t know where to put their money. The truth of the matter is that already US corporations have been hurt both from uncertainty and depressed earnings either because of international boycotts of their products or because terrace even is smaller than 150% are still over 30%. This will impact earnings which is the driver for stock market valuations pundits can say what they want but the truth is when earning step price of shares dip also.
As an example Tesla, it has seen it share price drop precipitously not because it’s price earning ratio has changed very much but because it’s earning have dropped by 71% that was the result that created a loss in the stock market of nearly 45%.
there is another factor which is important and has been disregarded the past 20 years, which is the potential return for similar and equivalent investment products. The truth is that yields on bonds have been dropping for the better part of 30 years for the past three years that have been rising, and yet the market has not taking the rising bond prize as a signal to change its investment strategy.
What we’re seeing now, this week, is the beginning of a shift because one the interest rate on five-year treasury bill is over 5%. No one can believe it’s below 1% anymore because that’s how the world view the US state market in fact since 2021 the cost of US debt has grown fivefold, which is not insignificant amount.
Here in the UK, most of the government’s debt is a long duration and anomaly among state where the average is between seven and six years whereas in the UK is between 12 and 13.
The stock market will behave as it has always behaved, it will assign a value Based on a perception of future revenues right now companies like Tesla, which are trading at a PE of 188 have only started pricing the potential earning growth or lack there of. What it means for companies like Tesla is that not only are earnings damaged by its reputation and quality perceptions, but also by its future potential growth and earnings as these have started decline dramatically. Therefore, we should anticipate that even if Teslas earnings recover it’s PE multiplier may not remain as high as 188 after all BYD, which is considered a direct competitor to Tesla has a PE of only 15 and GM of only seven.
Now, this is not a prediction the main reason it is not a prediction is that can take an awfully long time before the market reassesses the value of certain investments, what has hit gold is the arrival of a lot of fakes that’s why bitcoin has been doing so well so far it has not been safe faked and like gold it largely has no useful purpose.
I say this because several years ago I inherited a portfolio of bitcoins that had acquired for regulatory purpose at my old firm and when I liquidated the bitcoins I got around $45,000 per coin yesterday bitcoin was over $111,000
At the very best earning seasons for the first quarter of 20 25 will show that companies have been harmed by the tariff games that the Trump administration has been playing not only are earnings diminished but risk has increased to the reason has increased is because although the US administration has delayed or rescinded or paused some of the tariffs, they could easily come back tomorrow morning, there is nothing preventing Donald Trump from going back on his word he has done it more than once.
So, take all of this with a huge grain of salt, but understand that in the past 90 days, the world has fundamentally change. Maybe this hiccough is temporary but the perception of risk will remain for quite a while. Good luck
PS I have no position in Tesla stock.
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