Marta Norton on Tariffs, Market Trends, and Investing in Small Caps

Market Reaction to Tariffs

• 🎯 The market is closely watching the upcoming D-Day on April 2nd for clarity on the strategy behind tariffs.
• ❓ Investors are seeking to understand if tariffs are short-term negotiating tools or part of a larger shift towards reshoring US manufacturing and addressing trade deficits.
• ⚠️ Broad-based and longer-lasting tariffs could be more disruptive to corporate earnings.

Impact on Corporate Earnings

• ⚡ Tariffs directly impact earnings first, with companies facing challenges in passing increased costs to consumers due to demand elasticity and consumer spending power.
• 📉 Earnings revisions are visible in sectors like materials and industrials, reflecting tariff exposure.
• 💡 Technology sector earnings show less movement despite tariff exposure, suggesting investor hesitancy to price in worst-case scenarios.

Investment Strategy Amidst Uncertainty

• ⚖️ For 2025, the strategy is balance over conviction due to generally high valuations across the market.
• 📉 Even after a technical correction, valuations have not significantly decreased, limiting opportunities in deeply discounted assets.

Opportunities in Small Caps

• 📈 Small caps are identified as an exception, moving from relatively cheap to cheap on an absolute basis.
• ⚠️ While economically sensitive and carrying risk, judiciously adding to small caps offers a margin of safety.