It’s going to be close, but it appears the markets are going to eke out another positive week on the back of a tariff deal with the UK and hope that a deal with China happens soon as talks begin this weekend. With Q1 earnings behind us, the focus once again returns to economic data and tweets from the Oval Office. For now, the hard data remains firm and that’s enough for investors to remain engaged.
Perhaps the best news this week was the announcement that a deal has been reached between the United States and UK. While the details are still to be hammered out, we know that the blanket 10% tariff on UK imports still stands. Prime Minister Starmer said the UK will open access for the U.S. to sell beef, poultry, ethanol, and cereal. Additionally, it will purchase $10 billion worth of planes from Boeing. In return, the UK will be able to export 100,000 automobiles to the US without paying the 27.5% levy previously imposed. If you’re in the market for an Aston Martin, Land Rover, Jaguar, McLaren, Bentley, or Rolls Royce you’re in luck.
On the other hand, if you were hoping the Federal Reserve would cut interest rates at its meeting this week, you’d be out of luck. Amid pressure on all sides from the anticipated effects of President Trump’s tariffs, the Fed held interest rates steady and ramped up warnings of stagflation. While the soft data, (i.e., surveys and sentiment readings) show a sharp decline in expectations, the hard data remains strong. To be fair, there is a three-to-six-month lag in the hard data, but depending on where you fall on the political spectrum, you either think the tariff situation will result in a positive outcome for the U.S. economy, or you believe a recession is imminent. It appears the Fed is more concerned with the former, i.e. inflation, than the latter and is waiting to see the hard data deteriorate before loosening monetary policy. Based on this lag, we might expect the first rate cut to come late summer.
In other news, we learned that Warren Buffett, the CEO of Berkshire Hathaway, is stepping down after 60 years at the helm. The 94-year-old Buffett surprised even his successor at the Berkshire Hathaway annual conference when the announcement was made. It all started in 1965 with a struggling textile company and grew into one of the most successful American conglomerates with a market capitalization of over $1.1 trillion. Among his many positive traits that we can all learn from is his ability to remain patient and seek value (often during economic downturns). What’s next for Berkshire is that at the end of this year, Warren will hand the keys to the kingdom over to Greb Abel, his successor, whose first job will be to decide what to do with the $350 billion in cash the company has amassed. We are sad to see such an icon go, but recognize that nothing is forever.
I debated writing about this next story because I know he can be a controversial figure. But I decided to write about it and let you decide for yourself where you stand on the matter. This week, 70-year-old billionaire Bill Gates announced that he will be shutting down his foundation in 2045, with the expectation of disbursing $200 billion over the next twenty years. This is a shift from the original plan to wind down the foundation some twenty years after his death. The reasoning, according to Mr. Gates, is that he doesn’t want it said that “he died a rich man.” It is astounding to think that someone may give away that size fortune. On the other hand, there are those who rightfully say that this money is untaxed and could shore up budget deficits if the ultra-wealthy were just taxed accordingly. And before you feel sorry for his children, even though he is donating 99% of his wealth, the remainder is still greater than $1 billion. Let that sink in.
In closing, I turn to student loans and the resumption of student loan payments. Uncle Sam began collecting defaulted student debt this week for the first time since the Covid-era pause in March 2020. Borrowers who have missed payments for more than 270 days will have their debt deducted from tax refunds, wages, and government benefits, according to the Trump administration. Among the 42 million Americans with student loan debt, there are approximately 5 million borrowers who are in default, and another 4 million that are in late-stage delinquency. Only a third of Americans with federal loans have been making regular payments during the pause, according to the Department of Education. So, take this as a PSA. Loan repayments have commenced in earnest. If you need help in talking through how this might affect you, please reach out to your financial advisor. Now you know.
Bruce J. Mason, MBA
