Stocks are rallying through tariff news, but George Seay, Founder and Chairman, Annandale Capital, warns the real pain could hit months down the road.
Transcript:
CAROLINE WOODS: Stocks keep rising despite not just tariff uncertainty but actually higher tariffs at this point. We’ve been hearing updates from the White House. What do you think investors might have wrong there?
GEORGE SEAY: Yeah it’s funny. They certainly sold the market off very hard when liberation day happened and the tariffs first came out. And now they’re just shrugging with indifference, I think they think that President Trump is bluffing and he’s not going to follow through with these incredibly high tariff rates, which are obviously a big tax on the economy and a real brake towards economic growth and all that. I think they just kind of shrugged and said, he’s bluffing. He’s not going to go through with it, and it’s really not going to disrupt the growth of our American domestic economy that much, and that they’re just wanting to buy stocks and wanting to keep that momentum going. And as to your point, when stocks are rising, it tends to be self-sustaining and build on its own momentum. And that’s what we’ve seen the last couple of weeks. With the market at very high valuations. It just keeps tending to surge up and keep going. And that can go on a lot longer than you can predict at times.
CAROLINE WOODS: George, if President Trump isn’t bluffing and August 1st comes and higher tariff rates are at in play, what sort of economic and inflationary damage could that cause and what would the risk be to the market then?
GEORGE SEAY: Yeah and that’s another interesting observation, because it will definitely have a slowing effect on the economy and an accelerating effect on inflation. It’s just naturally inflation inducing because prices will go up. Because whenever these companies that have to pay these tariffs are paying more in taxes like that, their natural inclination is to raise prices and force those tariff hits they got to take onto their consumers and their customers. But the interesting thing about this dynamic is it’s going to take 6 to 18 months to see it fully play out if these stay in place for any reasonable amount of time. So you’re not going to see an immediate impact of that. And I think that’s another reason the market continues to rally this is some future dreadful event. It’s not something that immediately affects the economic growth of the country or earnings growth. So it’s kind of like one of these out of sight, out of mind is going to happen someday, but I’m not going to worry about it today. So 6 to 18 month fallout.
CAROLINE WOODS: What would the market impact look like?
GEORGE SEAY: Yeah eventually you’re going to have earnings growth slowing down or maybe even losing any earnings growth whatsoever on certain sectors of the market more heavily impacted. So at some point that can lead us to much slower economic growth, much slower profit growth and the market reassessing what kind of multiple it wants to pay for corporate earnings, which would lead the stock market to have go into a malaise period or even go down. And if we actually the economic growth slowed so much that we went into recession, that would always be obviously be very negative for stocks. Stocks tend to bottom about halfway through a recession. So you could get a period of unwinding of stock prices until we absorb all these blows to the economy. But that’s pure speculation. I mean, you’ve had economists and experts in the market predict a recession about eight times in the last five years. And we haven’t had one yet since the pandemic, a recession. It’s all speculation. You just got to wait and see.
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