Tariffs are biggest wildcard for growth: Strategist

to the upside this morning following better than expected ISM services report along with some relief following commentary from Commerce Secretary Howard Lutnick that came on terrace. However, volatility very much front and center for investors as the S&P comes off two days of back to back declines of more than 1% the index potentially swinging way up to 1.4% in either direction today. That's according to the latest data compiled by Citi. Joining us now to break it all down. We have Drew Mattis. He's a Chief Market Strategist at MetLife. We're also joined by Tim Hayes, the Chief Global Investment Strategist at NED Davis Research. It's great to have you here. Ned Davis Research, excuse me. Great to have both of you. As we start to think about some of the conflicting econ data that we have been getting out this morning. Obviously, the ISM number that we are digesting right now that coming in better than expected, maybe offering some relief. But Drew, I'm curious how you're making sense of some of those conflicting signals and then squaring that with the confusion out of Washington. I mean, I don't think the confusion in Washington has affected the real data yet. I think if we look at the ISM that just came out, what we're seeing is that growth is okay and inflation is a little sticky, which is kind of what we had all known was going to be the case. The wild card is kind of a tariff situation and what impact that has. And I think the biggest impact from tariffs is actually not inflation, it could be growth. And if it's growth, it's going to come through the equity channel into the upper end consumer channel. And so the volatility we see in equity markets is actually something we have to watch carefully because it'll impact the way upper income workers choose to spend or save their money. And it'll encourage them potentially to save more money in the expectation that the growth will in the economy will slow down. Yeah, Drew, we've been talking a lot this week about that Moody study showing that the top 10% of earners are responsible for half of consumer spending in the US. But Tim, I want to bring you into the conversation because I'm curious under that dynamic and backdrop, does the pessimism that's brewing about the economy, does the market have to drop to meet that pessimism? Or is the pessimism about the economy going to correct itself to allow the market to continue to hit new all time highs this year? Yeah, I would say the pessimism is really more about all the various scenarios, negative scenarios that have been considered, you know, with all the uncertainties about, about tariffs and trade and the trade war. And actually, we have an indicator of sentiment that shows the most pessimism since October of 2022, is it the end of a long bear market. And at that time, very few stocks were above their 200 moving averages. And that's not the case today. Actually, most stocks are still above their 200 moving averages globally. And some markets like Europe are very close to new highs. So I think the sentiment is really out of line with, with the reality of what our indicators are telling us and, and actually not even in line with what the market's been doing, even though we've had this sell off, it's been pretty normal for a correction. And this kind of pessimism is much greater than we usually see in a correction. So I think it's would be the other way around. I think the sentiment will come back to what the fundamentals are telling us. And Tim, what is your advice then for investors? How should they then be approaching the months to come? Well, we're remaining overweight equities. And I would say, as soon as we get more confirmation that we're back into an uptrend, I'd say this is a pretty good buying opportunity on the weakness. You know, we have a model that puts everything together. You look at the fact that bond yields, 10-year Treasury's been making new lows for the year. We have an economic timing model, or a global recession probability model, which is down around 12%, very low. We have earnings coming through. We also have the beat rate, which has remained pretty good. 75% of stocks are beating earnings. So you look at all the actual indicators that drive the market and have been responsible for driving the market higher, they're still favorable. And maybe this will start to change if we do see a negative impact from the trade war. Maybe the indicators start to pick that up. But until that happens, I think it would be premature to get out of the market right now. Drew, talk to me about how the market is reacting to policy just in terms of whether or not that Trump put is officially gone, given that we have retraced all the post-election gains. And do you think that Trump is still looking at the market as a check on his policy? I think your last reporter had it right. I think this administration believes in tariffs, believes that there's a role for tariffs to play. And I think that they are viewing the economy from a longer term perspective. So not what does it do to the economy in the next six months, as much as what it will mean for the U.S. economy five to 10 years from now. I think they're taking, you know, I think when you think about this administration, what they've tended to focus on or a lot of what they're focusing on has to do with, you know, the hollowing out of the U.S. manufacturing base, which they see as having been a precursor to a lot of other problems the U.S. is facing. And when you look at kind of tariff theory, that, you know, tariffs are appropriate when you are trying to offset negative impacts on free trade to various classes and constituencies like the workers in the Midwest, manufacturers, etc. So I think this administration is thinking about it in kind of a longer term prospect, rather than a short term prospect, even if their actions are actually more short term in nature. All right, Drew and Tim, thanks so much for giving us your insight here this morning.