Given the recent market volatility, I want to share with you why I believe the worst is behind us and, moving forward, the Gnomon Alpha portfolio will shine. I still firmly believe Gnomon Alpha will have positive returns in 2025. Simply put, the difficulties have come from the uncertainties caused by the Trump tariffs and the recalcitrance of the Fed. 

Such tariffs have never happened in the United States before, and markets have not known how to react. The simplistic answer is that they must cause inflation, and the Fed has taken that stance. It is the wrong answer because, unless accompanied by monetary stimulus, the tariffs cause the opposite reaction. They rob resources from other markets to pay for the tariffs. And, ultimately, businesses and consumers must reduce their spending, which means loss of jobs and, in time, a recession. Friday was the first step in the process, given the terrible employment numbers. 

An example of how inconsistent the information has been happened at the end of last week. A two-day storm deluged the markets because in just two days, the Fed went from outspokenly hawkish to facing unquestionably weak employment numbers.  In addition, Trump surprisingly cut the tariffs on U.S copper. In response, copper plummeted 21 percent in a matter of minutes. And stayed there. In my 40 years of watching markets, this has never happened before. Traders were leveraged while arbitrage trading U.S. copper vs. the Asian and European copper markets. Thursday, Trump’s copper tariff change forced traders to dump their U.S. copper with no concern for price. Margin calls dictated their immediate exit.

For now, however, the situation has stabilized. And the Fed has egg on its face, given what happened to the jobs market as reported Friday. On Wednesday, Powell said that employment was the key indicator of the economy’s strength. Now, even he must see that there is a need for lower rates. And the awful numbers on Friday might even push the Fed towards a 50 bp move starting as early as September. The moves will not happen in a vacuum. They will happen consistently over one year, and the Gnomon Alpha portfolio will feast on the market repricing that will undoubtedly result.