Stock Talk - "Tariff"ied Air: Inside “Liberation Day”, Tariff Chaos, and Market Fallout

Episode Date: April 11, 2025

Chaos has ensued in the financial markets following President Trump’s surprise “Liberation Day” tariff announcement—something no one had priced in or planned for. I walk you through what actually happened during the speech, why the markets initially rose and then collapsed, and how this unconventional tariff policy based on trade deficits, not reciprocal rates, led to a full-blown market rout. You’ll learn how the tariff formula differs from economic norms, how it impacts corporate earnings—especially for tech giants like Apple—and what it all means for investors moving forward. Despite the volatility, I explain why now may be a time to stay the course (or even invest more strategically) if you have a long-term financial plan. Watch this video to gain insight, context, and a sense of direction during one of the most unpredictable turns in recent market history.   Links for a good read: https://www.cnbc.com/2025/04/04/trumps-tariff-rates-for-other-countries-larger-than-word-trade-data.html https://awealthofcommonsense.com/2025/04/a-short-history-of-tariffs/   #Tariffs #MarketVolatility #LiberationDay   About Chris Perras, CFA®, CLU®, ChFC®, Chief Investment Officer: As CIO, Chris is the lead investment strategist and director of research at Oak Harvest Financial Group. Chris develops the firm's core market outlook, putting his decades of experience and expertise to work for our clients. He hosts Oak Harvest's podcast, "Stock Talk," available on the website with new episodes each week. He completed his undergraduate studies at Georgia Tech, and went on to obtain an MBA from the Harvard Business School. Driven by a desire to maximize his knowledge and skill set, he acquired financial planning and investment management qualifications, becoming a Chartered Life Underwriter (CLU®), a Chartered Financial Consultant (ChFC®), and a Chartered Financial Analyst (CFA®).   Stock Talk is a weekly vlog/podcast dedicated to discussing the Oak Harvest Financial Group Investment Team's perspective on what's happening in the market. Hosted by Chief Investment Officer Chris Perras, each episode brings you our views on stocks, the market, and the economy — with a little education thrown in for good measure. Listen each week and help stay connected to your money!   Do you need a retirement plan that goes beyond allocating funds to truly fit your needs? We can help you create a retirement life plan customized for your retirement vision and legacy. Call us at 877-896-0040 @or fill out this form for a free consultation: https://click2retire.com/Connect   Important disclosures: Content of Oak Harvest podcasts expresses the views of the speaker and is for informational purposes only. Oak Harvest believes that any data, articles, or information cited are reliable at the time of creation, but does not warrant any information contained herein to be correct, complete, accurate, or timely. References to third-party analysts should not be seen as an endorsement of their views or recommendations, and you should do your own research before investing. The views and opinions expressed herein may change without notice. Strategies and ideas discussed may not be right for you, and nothing in this podcast constitutes personalized investment, tax or legal advice, or an offer or solicitation to buy or sell securities. Indexes such as the S&P 500 are not available for direct investment and your investment results may differ when compared to an index. Any specific portfolio actions or strategies discussed will not apply to all client portfolios. Investing involves the risk of loss, and past performance is not indicative of future results.

Okay, investors, first off, neither the financial markets nor anyone we know had anything close to this in their 2025 Trump 2.0 playbook and his economic plan. Yes, the markets were expecting higher uncertainty from U.S. reciprocal tariffs. The market was actually pricing in about 10% across-the-board global tariffs into last Wednesday's so-called Liberation Day. The markets had already corrected quite a normal minus 10% plus, moved down on economic slum. that had been ongoing since last July, but it slowed more post Christmas and into the new year. But nowhere was any kind of plan like this sniffed out in the markets. Probably because, as few sources have since reported,

officials were still finalizing the plan up until three hours before his speech. Initially, the market traded up almost 1% during the first few minutes of his speech, as it looked like 10% tariff level was the news and was priced into the financial markets. My fellow Americans, this is liberating. Day, waiting for a long time. April 2nd, 2025 will forever be remembered as the day American industry was reborn, the day America's destiny was reclaimed, and the day that we began to make America wealthy again.

However, the President kept talking and revealed his data table for all to see. It didn't take long for the markets to see that Trump's tariffs were not true tariffs, tariffs and how they were calculated was not based on any known practice. The bad news is that the tariff announcements were far worse than expected, causing a shock drop in the market. The Trump calculation substituted the goods trade deficits for tariffs. It ignored trades and services completely. The Trump team came up with a formula for trading balances with the U.S. rather than reciprocal tariffs. While the administration hopes that tariffs on goods exported to other countries will raise hundreds of billions in revenues

annually for the U.S. Reducing domestic exports will slow both domestic and global economic growth. Remember investors, U.S. domestic economic growth was already slowing into the second half of 2004 into the November presidential election as the Biden-IRA spending bonanza had peaked in July of 2024,

along with excess government hiring. It was already slowing more post-Christmas as consumer uncertainty over Doge government fiscal cutbacks and immigration exportation had risen. Now, on top of that, throwing Trump's tariff plan, which is even more anti-growth than the markets had expected. With this, you get the financial markets to crash in a historically unpleasant but self-inflicted way.

Investors, for more details on the specifics, first standard economic thought and practice on tariffs, I'll drop a link to a really good CNBC article below. I'll drop in a few more links at the description in this video that are good reads on the history of tariffs and one that provides more data on the current administration. plan. The markets saw the news and they proceeded to tank. Stocks plunged last week as Trump's tariffs were far worse than the worst Wall Street had expected. Every market and sector that it

gains before last week were wiped out. The only shining star in portfolios was cash and treasury bonds, true safety assets. As traders say, in times of stress, correlations of all assets go to one. Why? Because almost instantaneously earnings expectations for 2025, which had already been coming down in a standard first quarter cuts, were now thrown out the window. As Liz Ann Sanders from Charles Schwab noted, the path of least resistance for earnings is significantly down from here. With a presentation of one spreadsheet by the president, most likely contrived by Peter Navarro, a longtime anti-trade academic economist from Harvard, earnings expectations from almost every company in the market's domestic and forum collapsed. This at the same time uncertainty skyrocketed. Investors,

Remember, it was just back in late December, and many Wall Street analysts estimated 2025 S&P 500 earnings around 285, mounting to 12 to 15% growth from 2024. I did mourn that these looked too optimistic as the dollar had rallied from the second half of 2024 into the fourth quarter of the year, which would hit the first half of 2025 earnings. However, at that time, many sell-side estimates were being raised due to anticipated pro-growth, Trump policy of lower taxes and less regulation. Throw that number out the window due to the previously slowing economic growth and now the Trump tariff chaos.

Even flat year-to-year earnings first 2024, which would be around 250 maybe, are looking optimistic now, and there are a higher chance of a couple of quarters of down year-to-year earnings now in 2025 due to the first half uncertainty and growth stall. Take a look at the percentage of sales derived outside the U.S. for a number of different indexes here in the U.S. per Goldman Sachs. If you're wondering why technology stocks and the NASDAX collapse the most after Trump's announcement, look no further than this table. Large-cap tech is significantly exposed to trade policy risks. Whether it's foreign government purchases of U.S. technology goods or services or foreign manufactured and source hardware backed by American-designed IP, think of Dell and Apple, almost 50% of technology sales are made outside of the United States. The Wall Street Journal gave a great example and graphic of the cost of building an Apple iPhone 16 Pro, free and post new tariff plan. Here's their great breakdown in one image.

For those of you following this who are listening to this video, the summary is the current bill of materials or cost of goods sold for iPhone 16 Pro. Cost of physical semiconductors, batteries, memory, glass, camera, and other things like plastic and display comes to about $550 per phone. The only major physical component manufactured here in the U.S. seems to be probably memory at about $22 a phone or only 4% of the cost of goods. The new system announced by the president looks to add almost $300 per phone to Apple's material costs. Folks, that's an increase of 54%. Think about the years measured in decades now and tens of billions of dollars. Apple and other tech companies such as Dell have invested in property, plant, and equipment, overseas to keep consumer product costs low and dropping and affordability high here in the United

States. And poof out of the blue with a stroke of a pen, a new system, splatterpaying economics. Check out Navarro's bio and short-term chaos. Investors, according to Lance Roberts at RIA, fourth quarter of 2024 S&P 500 earnings came in around 211 per share annualized, and earnings per share trends since around 2014 into 2025 comes in around $225 per share. This takes into account the earnings recession in 2022, as well as the COVID collapse in 2020. Of course, interest rates are dropping now. So once any forward earnings number is believed,

the market can put a higher PE on the number for growth and certainty, opposite its current lower PE and lower earnings estimates. On Friday, April 4, China decided to also play hardball. The market was also not expecting China to respond with a reciprocal 34% tariff on the US plus export controls on rare earth, metals needed for technology production. While this was a smart move on President Cheese part to

open tariff discussions from the point of strength, it created another follow-on shock to the markets. Investors, the only certainty currently is for the markets to remain uncertain, in turmoil and volatile until this issue plays out further. The economic chaos that is being created globally in all financial markets by a hastily slapped together net trade deficit calculation in an Excel spreadsheet, not a tariff plan, a spike point. volatility and uncertainty globally. So what happens from here? I don't know. No one does. On this current path, earnings estimates for S&P 500 will be slashed along with revenue and growth forecast. Those analysts who are concerned about lingering inflation in the fourth quarter of last year

and the first quarter of 2025 seemed to have quickly pivoted to the worst effect of dropping unit and real growth that tariffs present on top of economic slowdown that was already present in late 2024. Investors, this sell-off is truly unprecedented in my investment career as it is man-made by three to five individuals in Washington, D.C. What happens next or over the remainder of 2025? I don't know. Will Donald Trump pull back to 10% tariffs? As he discussed for months, like the financial markets had factored in?

Does he start using a carrot instead of a blunt force stick? I mean, I don't know. Time will tell. This is where financial planning rules the day. Investors, I will leave you with some historical data that says, that is not time to panic and sell out of your portfolio of stocks, particularly if you're working with a financial advisor and have a long-term financial plan

that has been stress tested for economic downturns, recessions, and hopefully one-off events like this one. Investors, if you need an advisor that can help you with this kind of planning, give us a call. First, during Trump's Liberation Day week, the VIX index spiked almost 110% in one week, making it the third fastest move higher ever, right behind COVID in 2020,

and China's Black Monday in mid-2015. Charlie Diello in creative planning always come out with great data showing historic one year through five-year forward returns on VIX spikes like this one. As we've tried to message many times over the last seven years, periods of super high volatility

have historically been the time and individual investors should be investing, not retreating from the long term. Periods measured in years, adding some to stock slowly and walking away or dollar cost averaging as your best percentage return historically have come when putting money in the market during recessions and other economic downturns such as this.

Investors, here are a few more data points that point to adding to long-term positions. Put option buying, which is buying insurance or betting on more downside, finally spiked to all-time highs on Friday, April 4th. Per data from the Chicago Board Exchange itself, put volume exploded to 42 million contracts on Friday and the S&P 500 move downward and a statistically oversold four standard deviation move. Investors additional historic return data

from sentiment trader and Jay Capell on volatility spikes of the VIX 2, 45, and Ford S&P 500 returns. No guarantee here, of course. X, the great financial crisis in late 2008 and the dot-com bust in 2000, one-year forward returns averaged over 20% and yes, that includes the crash of 1987.

No, there isn't a lot of great economic news there on the screens right now. There are definitely the times that are stressful for investors and those who care with managing other savings and financial plans. We're oversold in a four standard deviation move lower, which no one I know who has been bullish over the last two years had expected. Of course, this doesn't mean we can't go lower, but it does say we're at an extreme level, and historically, with equities being long-term assets, whose returns are measured in years, not weeks and months, it's been better to add to investments slowly rather than panic and pull the rip cord. Investors know that regardless of the path for the economy and the financial markets in the next few months, the investment team at O'Carvis will be here crewing the ship and adjusting our models where we can. Until next week, have a blessed weekend and know that the O'Carvis team

is doing what we can to plan for you and your family's future regardless of what stage you're at in your career or in retirement. Oak Harvest podcast expresses the views of the speaker and is for informational purposes only. It is based on information believed to be reliable when created, but any cited data, indicators, statistics, or other sources are not guaranteed. The views and opinions expressed herein may change without notice. Strategies and ideas discussed may not be right for you, and nothing in this podcast should be considered as personalized investment, tax or legal advice, or an offer or solicitation to buy or sell securities.

Indexes such as the S&P 500 are not available for direct investment, and your investment results may differ when compared to an index. Specific portfolio actions or strategies discussed will not apply to all client portfolios. Investing involves the risk of loss, and past performance is not indicative of future results.