💰 5 Fact Friday: Don’t Fall For The Stagflation Scare

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MARKETS
1. Tariff Turbulence Tests The Trump Put 😬 

The tariff war officially kicked off on Tuesday, and markets took it about as well as a toddler denied candy. Stocks tumbled all week, wiping out the last of the post-election gains.

As confidence wanes, all eyes have been on the so-called "Trump Put"—the belief that the president won’t let markets fall too far. But not everyone is convinced the safety net still exists.

One analyst even noted that Trump tweeted about the stock market 60 times in his first year in office. This time around? Only once since November.

Then, just as selling accelerated, the backpedals began.

By Wednesday, Trump carved out a one-month exemption for automakers after meeting with the Big Three—GM, Ford, and Stellantis. Later in the day, the White House floated similar exemptions for agricultural imports from Mexico and Canada.

On Thursday, Trump announced a broader tariff pause—delaying levies on goods and services covered by the United States-Mexico-Canada Agreement (USMCA) until April 2.

These delays and carveouts suggest Trump is still open to dealmaking—at least with Canada and Mexico. (China, however, has seen no leniency.)

Even with these partial rollbacks, markets took a beating this week:

📉 Dow Jones: -2.9%
📉 S&P 500: -3.6%
📉 Nasdaq: -4.1% (now in “correction” territory, down 10% from its high)
📉 Russell 2000: -4.5%

While the selloff stings, history says it’s nothing unusual.

Since 2009, the S&P 500 has logged 30 separate 5% pullbacks—averaging nearly two per year. And with markets experiencing a 14% intra-year drawdown on average, this correction is well within the realm of normal volatility.

Fortunately, if you find yourself sweating the turbulence, there’s an easy solution…

ECONOMY
2. Stagflation Fears Are Overblown—Here’s Why 🔍

If there’s one word that sends shivers down economists' spines, it’s stagflation—a nightmarish combo of stagnant growth and high inflation. And this week, that fear came roaring back.

Torsten Sløk, Chief Economist at Apollo, called DOGE and tariffs a “modest stagflation shock to the economy but not a recession.”

Then, the Atlanta Fed’s GDPNow model dropped its sharpest revision ever, slashing Q1 GDP expectations from +3.9% to -2.4%—igniting a media frenzy over a supposed Trumpcession.

Before you join the panic, let’s break this down.

1. Tariffs Do NOT Cause Ongoing Inflation
Tariffs do create a one-time price hike, but they do not continuously push prices higher. Think of it like a speed bump—not an uphill climb.

2. The Government Is Spending Less
Recent inflation was driven by massive government spending. With the current administration aiming to slash the budget and boost revenues with tariffs, the deficit should shrink. Less money printing = less long-term inflation pressure.

3. The Economy Is Slowing, Not Shrinking
Hiring slowed in February, but wages still rose 4.7% year over year—an excellent sign for consumer strength. Meanwhile, services and manufacturing PMIs remain in expansion mode. Slower growth? Yes. Contraction? No.

4. Sentiment ≠ Reality
Consumer and business surveys are flashing warning signs, but actual economic data still shows growth. As we’ve discussed before, politics may be distorting economic data.

5. That GDP Contraction? Doesn’t Pass The Smell Test
The GDPNow drop was fueled by a surge in imports—not an actual slowdown. Businesses presumably front-loaded shipments ahead of tariffs, and a rare spike in gold imports (which doesn’t even count toward GDP) skewed the data.

For context, Goldman Sachs is still projecting 1.6% GDP growth.

Bottom Line

Is growth slowing? Yes. Are tariffs causing some disruption? Of course. But full-blown stagflation? Not even close.

Don’t let sensational headlines shake your conviction. The data just isn’t there.

MARKETS
3. Investors Are Playing Defense 🏈

Markets have been chaotic, and when the going gets tough, the tough… start hoarding canned goods.

Lately, investors have been rotating away from riskier assets (like crypto and tech stocks) and into classic safe havens like gold and treasury bonds. But now, another trend is emerging: consumer staples.

Why? Because while people might cut back on vacations and fancy dinners, they’ll still buy groceries, household essentials, and—if history is any guide—beer and cigarettes.

📉 Retail, travel, and dining stocks are struggling—the Consumer Discretionary SPDR Fund ($XLY) is down 8.2% year to date, as investors brace for a possible consumer slowdown.

📈 Meanwhile, the Consumer Staples SPDR Fund ($XLP)—which includes companies like Costco, Walmart, and Procter & Gamble—is up 5.1%.

Some believe January’s dip in consumer spending was just post-holiday belt-tightening. But for those who think it signals something more concerning, shifting from discretionary to staples is a tried-and-true defensive move.

Other defensive plays? Healthcare stocks (the best-performing S&P 500 sector this year) and domestic manufacturers (solar, steel, and aluminum companies) that are benefiting from protectionist policies.

And if you want to de-risk even further, low-beta stocks—which tend to be less volatile than the broader market—could offer shelter from the storm.

FactSet data shows that consumer staples and defense stocks have some of the lowest beta ratings in the market, meaning they don’t swing as wildly as the S&P 500.

While this translates to less upside during a rally, it also results in less pain during a correction.

INTERNATIONAL
4. This Week In Geopolitics 🌍

🇺🇦 Ukraine: The U.S. is freezing military aid to Ukraine until Trump determines Zelensky is negotiating peace “in good faith.”

🇪🇺 Europe: The EU dropped an $840 billion “ReArm Europe” plan, aimed at boosting defense spending among member states. The timing? Just hours after the White House paused aid to Ukraine.

🇩🇪 Germany: Less than two weeks after its latest election, Germany announced major infrastructure and defense investments. The move sent 10-year bund yields soaring by the most in 28 years, making borrowing more expensive.

🇵🇦 Panama: BlackRock just dropped $23 billion to acquire two key ports at the Panama Canal from a Hong Kong firm. With Trump warning that “China is running the Panama Canal,” the deal aligns with U.S. efforts to retake control of strategic passageways.

🇨🇳 China: Beijing is going all-in on stimulus, raising its deficit target to a record 4% of GDP while setting a bold 5% growth goal for 2025. The plan? Pump money into infrastructure, home upgrades, and job creation—anything to keep consumer spending alive.

🇬🇱 Greenland: Trump is still eyeing Greenland. The island holds key rare earth minerals, like gallium. Trump has pitched a U.S. buyout with a simple message: “We will make you rich.” Polls suggest most of the 57,000 Greenlanders are skeptical.

STOCKS
5. Guess That Stock 🕵️‍♂️

This retail giant is on a mission to reclaim its former magic and bring back the nostalgia that once earned it a “French” nickname. Can you name the stock?

1. Down 34% over the past year—including a 16% drop YTD—this company is under pressure from both consumers and investors.

2. A 40-day consumer boycott kicked off this week, led by activists protesting its rollback of diversity and inclusion initiatives.

3. The company is bracing for a profit hit from tariffs, with its CEO warning that fresh produce prices could rise as soon as this week.

4. With 1,978 locations nationwide, over 75% of Americans live within 10 miles of one of its stores.

5. Its dog mascot, Bullseye, has been a marketing icon since 1999. The bull terrier has starred in ad campaigns and even made Super Bowl appearances.

Got a guess? Tap here to reveal the answer → 

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