Investment Climate Mar 2025: Tariffs, Tariffs, Everywhere!

The fear of tariffs set markets in a tizzy in the latter half of the first quarter of 2025, particularly hitting hard our growth companies as fear of higher inflation and interest rates once again drove a frenzy of underperformance for the fastest growing companies just as they had been gaining their footing through 2024.  As April progressed and the effects of “Liberation Day”--the day Trump’s tariff plan was announced--unfolded, markets accelerated to the downside and have been on a rollercoaster ride ever since. 

Interestingly, our income-oriented companies' stock prices held up relatively well and were essentially flat in the first quarter.  While we are glad to see our income names do well in this environment (as they are designed to do in uncertain times), we believe that the outperformance of growth-oriented company stocks by income stocks is unsustainable. We are likely to see a significant move in the market in the coming months that will boost the performance of growth companies. In fact, it is our view that this may be one of the best buying opportunities in growth companies we have seen in four decades! 

Why?

Our mentor, Dick Taylor, often would use the phrase “we get by in spite” when times were difficult due to actions taken in Washington. What he meant by this was that policymakers will make mistakes -- more often than not -- and in spite of this reality, well-managed companies in front of fertile growth fields will find their way through bad (or unfavorable) policy and ultimately do well.  For the bulk of the 21st century, we have been arguing that there are many things the government has been doing that has put roadblocks in front of businesses. We won’t rehash them, but it suffices to say that they primarily relate to the heavy hand of government in the form of regulation.  For example, the government’s COVID response was absolutely off the charts in its insanity; we need say no more on that!

Today, regardless of how one views Donald Trump, the whirlwind of the fist 100 days of the Trump Administration has brought forward the most aggressive, meaningful, and potentially impactful set of plans to rein in government overreach we have witnessed in our time in the business (now almost 40 years). It is the first time in such a tumultuous period that we can honestly say that we will not just get by in spite of government actions, but that we will actually come out much better off as a result of government policies. We are certain that if Dick Taylor and his mentor, Thomas Rowe Price, were alive today, they would say the same. And while we are not fans of protectionism, we take the view that this seemingly chaotic approach to global trade will ultimately result in a much freer world trade order that will greatly benefit the entire world, especially American business and workers.

Needless to say, if we are proven right, by that time there will be no time to react to take advantage of this opportunity because by that time markets will have violently reset growth companies’ valuations to the upside.  It’s been a rough few years for growth companies, but our message is to hang in there and, if you don’t have positions yet, buy!