Policy shifts were the primary cause of the North American market slump that occurred in April. Almost without exception, policy has acted as a “backstop” for the market during the previous 30 years. As soon as markets started acting up, policymakers stepped in to fix the problem. Moreover, during times of relative economic stability, new measures were often moderately beneficial.

Reason being, changes to the market prompted by government policy are in fact rather uncommon. However, comparable shifts in the past have usually occurred rapidly and then disappeared. When markets adjust to new rules, business as usual resumes. Perhaps most intriguingly, economic fundamentals and policy-induced corrections are often at odds with one another, and economic data tends to be robust for a while.

1. Is the economy showing signs of weakness, even if it appears decent?

“Tariff uncertainty” may have inflated the current economic and company earnings performance, according to certain forward-looking data. As an example, in Q1, U.S. transportation volume increased, which lifted industrial production and certain consumer statistics, as a result of imports being rushed before prospective tariffs.

The sum of all purchases made by American customers using their credit and debit cards is 2.4% higher than a year ago, according to statistics collected daily. But if we dig a little more, we find that the “physical goods” consumption category which includes things like gadgets, cars, and department stores is the one that has driven up overall numbers. Aviation and lodging, on the other hand, are leisure consumption sectors that have not yet shown signs of life.

2. Do consumers’ anticipation about tariffs impact their behaviour?

Is the fear of future price hikes prompting shoppers to stock up early? This “front-loading” strategy may cause demand to decline down the road if that’s the case. Container shipping and industrial operations could possibly experience similar occurrences.

Another change is shown by the accommodation data: in the last year, low-income groups were more frugal as a result of inflationary pressures, whereas high-income groups’ consumption was rather stable. However, recent statistics also reveal that upscale hotels are starting to witness a decline in guest traffic. As a result, the consumption downturn has progressed from the lowest to the highest income brackets.

3. Groups with lower incomes aren’t the only ones cutting back.

Data from credit cards provides more in-depth signals. Credit card debt increased dramatically after the epidemic as many North American customers stopped carrying cash and started using their cards instead. The use of credit cards has been on the decline as of late, which may indicate that shoppers are reaching a “breaking point.”

Default rates are on the rise, which is a bigger concern, particularly for auto loans and credit cards. Credit card default rates are getting close to their highest levels since the financial crisis, while mortgage default rates are still relatively low. This is happening while the economy is not formally in recession and labour markets are still healthy, demonstrating how pressure from high interest rates and inflation is slowly building up.

4. Expenditure engine deceleration?

Americans used to be famous for “earning a dollar, spending a dollar twenty,” but it appears that their “advance spending power” is being eroded. Even while wage growth and the job market are doing well, this tendency is starting to emerge, which raises some important questions that need answering.

Neither long-term government market stimulus nor policy uncertainty has been successful in reversing the consumer momentum drop. At the very least, this shows that consumer stock investments should be more “selective.” It may also be a sign of a slowdown in economic development in the next months or quarters.

5. Last Thoughts

A little market volatility in the next months is unavoidable, and investors shouldn’t freak out just yet, but the present state of the US economy does reveal indications of possible deterioration. In these kinds of volatile markets, long-term investors need to get back to basics with their asset allocation and cash flow management strategies. To successfully navigate unpredictable cycles, one must have reasonable cash flow reserves, control over their positions, a diversified allocation, and strategies for allocating high-quality assets.

In my spare time, I love to write and create content. My goal is to simplify complex ideas about North American asset management so that my wealthy American and Chinese friends can finally shed the old belief that “real estate investment, term deposits, and bank balanced funds are the most stable safeguards.” You can participate in the market value enjoyed by the mainstream wealthy in North America while enjoying safer, higher-quality returns on my internationally accessible platform. The management costs are lower and more transparent.

During my free time, I am also involved in official relationships with various Canadian universities, where I mentor and speak on panels to help students with financial industry job questions. I enjoy these pursuits because they allow me to share what I’ve learned with others, even though they have little to do with my main job. Please feel free to join me in conversation so that we can all gain knowledge.

Outside of client meetings, data analysis, and chart study, you can find me playing basketball or tennis, hiking through snow-covered western mountain ranges, or lost in a good book at a library. Physical movement and introspective thought both help me refuel.

I regularly inform my customers: “Market emotions are frequently noisy and chaotic, but excellent strategies consistently prove themselves steadfast throughout the course of history.” The most valuable asset a customer may have is not a product or choice, but rather a trustworthy advisor who looks out for their best interests and is prepared to stick with them and their family through thick and thin as they seek out better solutions.