The last few weeks have been very eventful and we’ll try to provide some context on these important areas: Tariffs, AI, and the war with Iran. Our focus is on the investment implications of each and aren’t intended to cover every aspect of the issues.
More broadly, and pre-Iran attacks, here are Commonwealth’s March 2025 Market Thoughts.
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Iran
- Duration is what matters for investors: How long does the conflict last? The US and Israel are working to quickly remove Iran’s military capabilities and success is uncertain.
- The death of Iran’s supreme leader could lead to significant instability. If the regime survives, it will be weaker. If it doesn’t, we may see a messy fight since the opposition is not a unified front.
- The major investment issue is energy- oil and natural gas. There is a significant short-term disruption due to the Strait of Hormuz being closed, stoppages in Qatari natural gas production, and other commerce halting due to ongoing danger. Energy prices will rise, but no one knows by how much and whether it will have a measurable impact on inflation and other economic measures.
- CONCLUSION: In the short term, we should be prepared for volatility. In the long run, the diminished power of the Iranian regime is good for the Middle East. If Iran becomes a friendlier and freer country, the upside could be significant. It is too soon to tell.
Tariffs
- LPL has
a good rundown of what to expect
after the Supreme Court ruled against the president’s use of the International Emergency Economic Powers Act (IEEPA) to enact tariffs. - Among the takeaways:
- Tariffs aren’t going away. The president has other options and immediately employed them. Trade policy uncertainty is not great for the economy and we should expect additional legal challenges.
- Tariffs have not had a clearly discernible impact on inflation, but fewer tariffs are constructive.
- More in “Ask the Joes”
AI
- Tech and AI-adjacent companies continue to represent a large percentage of the major stock indices. This makes it hard for investors to avoid negative results if they occur.
- Concerns about overspending in AI remain. How will all of this spending impact actual company results? We are still learning.
- As AI tools improve, especially “agents” that are able to streamline processes, some companies will face competitive pressure. This is good for consumers generally, while posing a risk to companies that can’t adjust, and their employees.
Whatever the issue, diversification continues to be an excellent tool in reducing the general risks we face as investors, from any source.
Diversification does not assure a profit or protect loss in declining markets and cannot guarantee that any objective or goal will be achieved.
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Q: Do you have any opinions about the Court’s tariff decision?
A: For many years, we have talked about the unintended consequences of different government policies. For example, bank safety laws have made it harder for small banks to compete and has led to MORE asset concentration in the big banks. Pollution controls for cargo ships reduced emissions and cloud cover, improving air quality but INCREASING ocean warming.
The consequences of the Trump administration’s tariff policies are still developing, but a few things appear so far. Manufacturing jobs have not increased, and many economists feel that economic growth has been lower than it would have been without tariffs.
We think this quote from Justice Gorsuch’s concurrence with the tariff decision explains the issue beautifully:
“For those who think it important for the Nation to impose more tariffs, I understand that today’s decision will be disappointing. All I can offer them is that most major decisions affecting the rights and responsibilities of the American people (including the duty to pay taxes and tariffs) are funneled through the legislative process for a reason. Yes, legislating can be hard and take time. And, yes, it can be tempting to bypass Congress when some pressing problem arises. But the deliberative nature of the legislative process was the whole point of its design. Through that process, the Nation can tap the combined wisdom of the people’s elected representatives, not just that of one faction or man. There, deliberation tempers impulse, and compromise hammers disagreements into workable solutions. And because laws must earn such broad support to survive the legislative process, they tend to endure, allowing ordinary people to plan their lives in ways they cannot when the rules shift from day to day. In all, the legislative process helps ensure each of us has a stake in the laws that govern us and in the Nation’s future. For some today, the weight of those virtues is apparent. For others, it may not seem so obvious. But if history is any guide, the tables will turn and the day will come when those disappointed by today’s result will appreciate the legislative process for the bulwark of liberty it is.”