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Monday Mourning
What a game. Sometimes, in sports, like in investing, you can get the process right, but the outcome is still not in your favour. That was Team Canada’s fate yesterday – outshooting Team USA 42-28 and dominating the chances in the second and third periods, before finally losing in a barnburner 3 on 3 overtime. While the process provided for the best chance to win, what ultimately mattered was the result, with Team USA winning largely on the back of tremendous goaltending by Connor Hellebuyck.
Similarly, in investing, what ultimately matters is price. An investor can get the process right, but if the price is wrong, there is little solace, as many companies in the AI-at-risk baskets have been feeling lately. In fact, we would argue that price itself is an important input when combined with fundamental analysis, as the wisdom of the collective is often a strong signal in and of itself. And the market recently has been sending strong signals with over 95% of Energy and Materials companies trading above their 200-day moving averages, while a mere 43% of Technology companies do.
Figure 1 – Strongest Breadth in Cyclicals and Defensives, Technology/Comm Serv. Weak
Admittedly, focusing on what influences price in this environment has been challenging for investors, in part because so many concurrent foundational changes are happening at once. To navigate what can be a disorienting environment, we try to identify what might be just noise – events that consume more of the headline oxygen than their ultimate impact.
IEEPA Tariffs – More Noise and More Uncertainty
One such headline grabber came on Friday when the long-anticipated U.S. Supreme Court ruling striking down Trump’s IEEPA tariffs finally arrived. Trump moved quickly on step one of his tariff replacement plan, instituting Section 122 tariffs (global, across the board, temporary tariffs), that he raised to 15% on Saturday.
Figure 2 – Tariff Pathways
While we want to be careful not to just dismiss this as noise, we would argue that for now, in aggregate not much has really changed. For one thing, the ruling against IEEPA was largely anticipated, even if the timing was uncertain. Moreover, we would take the administration at its word that after the implementation of the replacement tariffs, the effective tariff rate is likely to remain approximately the same. Indeed, Treasury Secretary Scott Bessent has been making the news rounds this weekend doubling down that “we will get back to the same level of tariffs”. In fact, this may be why Trump decided on a 15% global tariff rate over the weekend instead of the initial 10% - to neutralize the tariff revenue coming in. According to Goldman Sachs, a 15% Section 122 tariff would result in an effective tariff rate of 9%, just slightly below the effective rate before the ruling. Future tariffs utilizing other pathways will undoubtedly seek to patch up any lost revenue from IEEPA or the expiry of Section 122 tariffs after 150 days.
Figure 3 – Effective Tariff Rate Before and After IEEPA
It does introduce uncertainty, however – with the EU pausing ratification of its trade deal this morning citing “tariff chaos”. We would expect that it will take some time to sort out the details when it comes to specific countries, given that some have already agreed to deals at 10% (e.g. Australia and the U.K.), others at 15% (EU and Japan), and many others being charged above that prior to the ruling. That said, U.S. Trade Representative Jamieson Greer appeared Sunday on CBS’ Face the Nation seeking to separate the trade deals already agreed to from the planned 15% global tariff. In other words, despite the legal reshuffling, for most countries the broader direction of U.S. trade policy appears largely intact: tariffs will remain in place, and in most cases the administration will seek to get back to the same agreed-to levels.
Finally, there is the noise on refunds. The Supreme Court did not address the issue, and with an estimated $133 billion of tariffs having been paid through IEEPA, the refund process will likely involve a messy mix of the Court of International Trade and other lower courts, and take substantial time to resolve. There have been more than 1000 lawsuits filed for refunds, including companies such as Costco, Toyota, Alcoa, EssilorLuxottica, and Diageo – we would not expect a tariff refund windfall for any of these companies in the near-term.
Process Still Takes Precedence
Given the fluidity of the tariff backdrop, we are making no knee-jerk portfolio changes in the Ninepoint Global Select Fund in response to last week’s IEEPA headlines. Price matters, and noise can be loud, but neither replaces disciplined fundamental work. Every idea still needs to pass the same sniff test: market leadership characteristics, above average revenue growth, and resilient business models.
While Canada did not capture Olympic gold this time around, it still has nine Olympic gold medals in hockey – more than any other country and seven more than the United States. This is not because it wins every game or every bounce, but because of a deep and consistent system that makes it a contender every tournament. Investing isn’t that different - we will not win every trade or every quarter, but by staying grounded in price, process, and perspective, we believe we give ourselves the best opportunity to be on the podium over the long run.
Have a great week!
Cheers,
JLO
Jonathan Lo
Associate Portfolio Manager
Sam Mitter
Senior Portfolio Manager