Michael Cembalest is out with a note that’s getting passed around everywhere.
I shared the parts on Canada earlier but the whole thing is a gem, and you can read it here.
Here’s the interesting thing about the stock market: it cannot be indicted, arrested or deported1; it cannot be
intimidated, threatened or bullied; it has no gender, ethnicity or religion; it cannot be fired, furloughed or
defunded; it cannot be primaried before the next midterm elections; and it cannot be seized, nationalized or
invaded4. It’s the ultimate voting machine, reflecting prospects for earnings growth, stability, liquidity, inflation,
taxation and predictable rule of law.
It’s been a painful time in the market so far and the big problem is that Trump’s term started with high valuations and they’re still high, particularly if the ‘E’ in the price-to-earnings ratio begins to fall.
I’m bullish on AI but rates are high and –all else equal — that should mean a lower P/E ratio.
Here is another notable part of the note.
McKinley tariffs were very popular at the time they were enacted (he championed them as House
Ways and Means Committee Chair), but they caused an almost immediate inflation spike. Voters were very
unhappy: a few months later, the GOP lost 100 seats in the 1890 midterm elections. The GOP loss in 1890 is the
third largest in the history of the House going back to the Civil War
