By Peter Tchir of Academy Securities

Memorial Day

We hope you are all enjoying the Memorial Day long weekend! We could all use a nice long weekend after the past few months, which have been quite intense on the news, policy, geopolitical, and market fronts. Today is meant to honor members of the military who were killed in service. I am thankful for all that the military does, and have been incredibly lucky to be part of the growth of Academy Securities, which continues to grow our capital, increase the size and scope of the Geopolitical Intelligence Group, and, most importantly, is continuing to hire veterans.

To allow you to more fully enjoy your Memorial Day, and because, quite frankly, it is difficult to think of something new to add, we will keep today’s T-Report short and hopefully sweet.

While somewhat squeamish about Thursday’s shift to recommending Start Adding Duration, we will stick to that for now (but are closely watching foreign bond yields and the dollar, as we think we need some support there for U.S. yields to move much lower).

Uncertainty – Main Street vs. Wall Street

It was less than 2 months ago that markets were “bracing” for Main Street over Wall Street. Basically, policies that would be good for Main Street would be followed, even if they hurt Wall Street.

At the time, we argued that Main Street and Wall Street were more closely aligned than that simple message implied. There are differences, and we could certainly see (or see again) things that could hurt margins and therefore stocks, while helping people with jobs and taxes, but overall, the two are probably going to have to move in the same direction.

Wall Street seems less uncertain:

• VIX is slightly elevated at 20. Elevated yes, but with a high degree of uncertainty, no.
• Friday’s tariffs posts from the President regarding iPhones and the EU moved markets a little (yes, I think we can call 1% “a little” in this trading environment). But markets didn’t panic, and we saw buying throughout the day, because guess what? A few weeks ago, the President seemed happy with Tim Cook and just ahead of negotiations in Geneva with China, the President put out on Truth Social that “80%” seemed right – and we came back with 30%. Lo and behold (surprising absolutely no one) the EU tariffs have been put back on delay (to the July 9th date that was the original date of the April 9th 90-day pause). Stock futures are now slightly higher than where they closed Thursday night (before that recent set of posts that markets have learned, correctly (for now) to largely ignore).
• Putin. Peace? Sanctions? Markets seem nonplussed to the headlines. New sanctions would likely be bad for markets (similarly, if new sanctions are imposed on Iran), but markets seem to have very little concern about that risk.
• The CNN Fear and Greed Index is back to a reading of Greed. Personally, I don’t think this index has kept up with the times, as so many new tools for investors have been developed, but it is a proxy of something and does indicate that markets have become relatively docile again.
• It would be remiss not to point out that TQQQ (3x leveraged QQQ) continues to see outflows, and retail has been timing this market pretty darn well. This works against the narrative about Wall Street becoming less uncertain, but it is what it is.

What was the point of all that?

The point, I think, is that while Wall Street is less uncertain (or less concerned about uncertainty), Main Street seems VERY Uncertain.

Anecdotally, most things we are hearing fit the narrative that Main Street (call it, Corporate America of all shapes and sizes) is highly uncertain and is struggling with the uncertainty. The degree of the struggle varies, from minimal to severe (small companies dependent on China form the bulk of the latter). Make no mistake, there are pockets of the economy that are humming along. Some companies stand to benefit, even benefit greatly, from Budget 2026, deregulation, and spending linked to improving national security through national production.

But the vast majority of what we hear is uncertainty. The difficulty is figuring out when, where, or if that uncertainty will hit the economic data.

The difficulty with finding evidence that this higher uncertainty on “Main Street” will actually impact the economy stems from several issues:

• The initial ramp up in orders to get ahead of the tariffs, and then the renewed effort to take advantage of the pauses in case the pauses turn out to be temporary. Amidst the backdrop of uncertainty has been the need to stockpile resources, making the economy potentially look stronger than it is.
• Contracts and commitments don’t change quickly. If you entered into a contract when everything seemed geared towards growth (and we are hopeful the administration is pivoting back to that, rather than starting to double back down on tariffs), you are committed to that. It is only as contracts get renewed, or decisions for new projects get made, that uncertainty would start to show up. It might be early for that, hence little evidence of actually slower spending, despite the message of caution.
• Supply chain problems and tariff-linked inflation. Can you see that? Maybe if you squint really hard (seeing some people point to a turn in Truflation data, that I need to explore more). Here again we have two issues with timing:
  • Given the inventory ordered to prepare for tariffs, we wouldn’t expect to see much until June/July (which are approaching). All of the “temporary” reductions will likely have pushed risks of “unstocked shelves” further down the road. Which may mean that the issue will never materialize, but also makes it easy to ignore the risk.
  • Increased pricing tends not to get implemented overnight. There will be some absorption of the tariffs. First step is to get the exporter to cut a deal. Then the importer will likely “eat” some of the cost. Even what they decide to pass on will take some time, as many prices have been contractually agreed upon, forcing it to take time before we see it in the system. Also, it seems like it would be wise not to draw the President’s ire by ratcheting up prices, so you would slow play it.

We will be spending the better part of this week trying to figure out where we might identify early warning signs that Wall Street’s lack of concern is unwarranted and Main Street’s concerns will impact the data, the economy, and then markets.

Bottom Line

Wall Street seems less concerned than Main Street, but much of the data doesn’t support the anecdotal evidence that Main Street is concerned.

That is the conundrum.

• Is Main Street even concerned, or do we face a time where “talk is cheap” and it is easier to talk about uncertainty than it is to change behavior?
• Even if Main Street is concerned, have they done enough to bide their time, and as policy shifts towards pro-growth, the concerns will reverse course?
• Or have we already set in motion, with even 10% tariffs, a chain of events that will lead to a slower economy and higher prices in the short-term? This is probably my base case, but other cases are certainly plausible.

The more the administration focuses on growth, deregulation, and national production for national security, the better. Late last week, there were indications that we might be getting away from that. Minor indications, that have been assuaged by the extension, but we might all need to be thinking that while peak tariff uncertainty (danger) is behind us, we may also be past peak “dealz” optimism.

Finally, what I think is more likely is that as we digest the uncertainty going forward and the certainty of what has already been done, we should brace for a change in the economic winds again.

In no way, shape, or form do I see the current trajectory leading to Depression or even Deep Recession (unlike the pre-delay, no budget in sight policies) but that doesn’t mean markets haven’t gotten ahead of themselves (both equities and bonds).

The worst of the volatility and price action is almost certainly behind us, but that doesn’t mean the market won’t over-reach and it seems like currently there is a risk that Wall Street is ignoring Main Street’s uncertainty.

As we do some data dives this week trying to figure out what the “steady” state of the economy is likely to look like by the end of the summer (assuming we are roughly on the current policy glidepath), we will share that.

There is a chance the data dive makes us more optimistic about current market levels, but my sense is that in digging deeper, we will highlight some impacts that the market isn’t pricing in.

Enjoy the weekend and hopefully we all have an enjoyable and productive summer!