Below, EPI senior economist Elise Gould offers her insights on today’s release of the Job Openings and Labor Turnover Survey (JOLTS) for February. Read the full thread here.

 

The topline numbers in the latest #NumbersDay report on Job Openings and Labor Turnover for February showed little changed in February, but we can see the fingerprints of recent policy decisions on the federal workforce. The data show 18,000 laid off federal workers in February.

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— Elise Gould (@elisegould.bsky.social) April 1, 2025 at 9:23 AM

The spike in the layoffs rate for federal workers in February 2025 is the steepest uptick since the laying off of census takers in 2020. The decision of this administration to target the federal workforce is having its intended effect. Unfortunately, this is likely only the tip of the iceberg.

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— Elise Gould (@elisegould.bsky.social) April 1, 2025 at 9:31 AM

Because the federal workforce is only a small share of the overall workforce—and one that has fallen precipitously as a share since the 1950s—the federal layoffs are not showing up in the economy-wide layoff rate.
www.epi.org/blog/doge-is…

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— Elise Gould (@elisegould.bsky.social) April 1, 2025 at 9:42 AM

Overall, the rate of hires, quits, and layoffs were unchanged between January and February. What we are beginning to see in the federal workforce layoffs along with massive spending cuts has yet to hit the data for the private sector. There’s no question it is coming.
#NumbersDay #EconSky

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— Elise Gould (@elisegould.bsky.social) April 1, 2025 at 9:48 AM

Barbara Shecter of the National Post reports Trump's global shakeup is complicating life for Canada's $2-trillion pension giants:

Ontario Teachers’ Pension Plan Board chief executive Jo Taylor and his investing team usually rely on a lot of real-world data when determining where to allocate billions of dollars of investment money on behalf of retirees. But United States President Donald Trump’s flurry of edicts that threaten to upend global trade and geopolitical alliances makes it hard to know what data points they should even be looking at.

“The predictability of what we’re investing in is lower,” Taylor said as pension teams across the country dig into drafting and assessing potential scenarios for a year that, given the prospect of multiple pockets of economic and geopolitical unrest, could be very different from those that came before it. “Looking forward and trying to predict the future is more challenging.”

Globally invested pensions such as Teachers’, particularly those with large exposure to North America, are acknowledging that investment risks are rising as predictability falls, and the uncertainty is not simply tied to a particular region, sector or asset class like it sometimes is.

Trump exporting risk

The policies and rhetoric of the U.S. administration under Trump — including threats of escalating trade tariffs, threats to annex Greenland, the Panama Canal and Canada, and warnings about withdrawing traditional military support from European allies that don’t meet North Atlantic Treaty Organization (NATO) funding targets — are essentially exporting risk to governments and companies around the world.

This, combined with uncertainty of what he will say from day to day and his ever-changing tariff policies, complicates decision-making at globally invested pensions like the eight largest ones in Canada, which together manage nearly $2.4 trillion to fund the retirements of millions of Canadians.

“It’s hard to predict Mr. Trump,” is the blunt assessment of Charles Emond, chief executive of Caisse de dépôt et placement du Québec.

Pension managers typically assess risk and asset allocation by using models, underpinned by data, to test their portfolios and reveal what would happen against possible and plausible scenarios. Sebastien Betermier, an associate professor of finance at McGill University’s Desautels Faculty of Management, said they then assign probabilities to each outcome.

The problem now is that things are changing very fast — often from one day to the next — and the movements being contemplated by the models are far more extreme and wide-ranging than they have been in the past.

“These scenarios capture regime shifts that are complex and hard to model quantitatively,” Betermier said, adding that pension managers must rely on a certain amount of “narrative building” in the absence of hard facts and figures about how things will play out economically and geopolitically.

What pension professionals can see is that the U.S. equity markets that helped propel returns into the high-single and even low-double-digit returns over the past year or more may no longer reliably do so. Both the benchmark S&P 500 and the Nasdaq composite, often viewed as a stand-in for the tech sector, slid into correction territory in March.

Geopolitical risks rising

There are other less clear yet rising risks pointing to the potential for a global recession, Steven Riddiough, an associate professor of finance at the University of Toronto, said. The escalating trade wars already enveloping North America, Mexico, China, the United Kingdom and Europe threaten to slow growth across the board, he said.

But these conventional sources of risk in economic and market systems do not even paint the full picture for global investing entities, which are vulnerable to an often-overlooked source that can cause major disruptions: geopolitics.

“Countries and firms are seeing their exposure to geopolitical risk change in real time. Many countries — especially in Europe — now feel far more vulnerable as the U.S. creates uncertainty around its explicit and implicit international commitments,” Riddiough said. “In effect, the U.S. is exporting risk to foreign governments and firms through these policy shifts, rapidly altering the risk profile of investors’ portfolios.”

In Trump’s first term as president, he repeatedly said the U.S. might pull out of NATO. Since he took office again in January, he has wielded a different threat by targeting specific nations in the 32-country alliance that don’t pay what he thinks is their fair share of the costs to defend them.

This threat is being acutely felt in Europe, which has relied on the U.S. as the primary guarantor for security since shortly after the Second World War, as have many other countries. The position taken by Trump and the White House on NATO-hopeful Ukraine, including a public confrontation with President Volodymyr Zelenskyy that suggested the U.S. may no longer help push back on Russia’s invasion, sent fears through nearby NATO member countries such as Poland and raised questions about whether an attack on one NATO member will continue to be viewed by the U.S. as an attack on them all.

Such challenges to nearly 80-year-old international understandings — not to mention Canada suddenly being declared by Trump to be an enemy rather than a partner in trade — are forcing pension managers to undertake far more complex reviews than usual and face tough decisions across a number of portfolios.

The situation is also challenging a key element of what has made large, globally invested pensions such as Canada’s so-called Maple 8 group so successful: diversification. By spreading investments, from equities to infrastructure, across public and private assets and buying in a variety of countries, they reduce the downside risk of something going wrong with a particular asset class or in a particular country or region.

However, with geopolitical upheaval spreading across jurisdictions and threatening to penalize multiple sectors and asset classes, there could be widespread repricing of risk, which would send investors fleeing to safer assets in what’s known as a “risk-off” scenario.

“In extreme risk-off scenarios, it’s like everyone rushing for the exits in a burning theatre,” said Riddiough, whose resumé includes a consulting stint with the Canada Pension Plan Investment Board on global tactical asset allocation.

“In those moments, assets that normally move independently start selling off in unison. In the most extreme case, if everything sells off in exactly the same way, then it doesn’t really matter how many assets you hold; it’s as if you only own one.”

Canadian pension managers have increased investments in private assets over the past decade or more in part to avoid getting caught in such scenarios. Because assets such as real estate, private equity and infrastructure don’t trade frequently or in as volatile a manner as public markets, they can preserve value — and mask elevated risk — even when public markets plummet.

However, new approaches to valuing private assets are threatening to close this gap, which can also make these less liquid assets difficult to exit in times of crisis due to large gaps between what sellers and buyers think the assets are worth — as happened with commercial real estate after the COVID-19 pandemic spurred a surge in remote work and office building vacancies skyrocketed.

“It’s increasingly difficult to hide the elevated risk by overweighting private markets because many firms are building tools, using data and AI, to quantify private market risk in real time,” said Kenneth Kroner, an economist and finance professional who spent two decades at investment company BlackRock Inc., where he oversaw multi-asset strategies and systemic active equities as a senior managing director and member of the global executive committee.

“In a few years, the true risk of private investing will be quantified and well-understood. In the meantime, I think most sophisticated boards … aren’t fooled one bit,” he said. “If I were a portfolio manager (at one of Canada’s big pensions), I’d emphasize to my board (and) clients that risk is elevated even though the data might not currently say so.”

Still, the Edmonton-born Kroner, who was a director at Alberta Investment Management Corp. (AIMCo) for seven years until a government-led shakeup resulted in his departure along with the rest of the board last year, said he doesn’t think Canadian pensions should be making any sudden moves in the way they invest in response to Trump.

Pension managers should focus on their advantage, which is long-term investing. Today, that’s clearer than at any time in my career

Kenneth Kroner, economist and finance professional

Instead, he said, they should be scrutinizing everything that is happening and modelling what the consequences are likely to be in order to focus on what will survive in the years well beyond his presidency and invest based on that.

“I would study and understand those risks now,” he said. “But I wouldn’t invest for those risks until I believe that they’ll be a reality in 10 years’ time.”

Long-term view

For example, pension professionals should be asking themselves what trade policy will look like in a decade, rather than simply looking at what Trump is proposing now, Kroner said. Another key question is where innovation will be strongest at that point, if not the U.S. There is also the question of how shifting alliances today are likely to alter geopolitical order beyond the lifetimes of current country leaders.

Some will try to profit from the “noise” around Trump, including his shifting rhetoric on tariffs and threats to bring economic harm to Canada to get what he wants on issues including trade and NATO funding, but he said he would not advise pensions to try to pick short-term winners and losers.

“The noise level is just too high to make informed bets along these lines; leave those bets to naive investors,” he said, adding that the investment horizon of pension funds gives their managers the option to set a different course. “Pension managers should focus on their advantage, which is long-term investing. Today, that’s clearer than at any time in my career.”

This means closely scrutinizing the impact of the fast-shifting geopolitical order, which has the potential to crimp growth and long-term returns.

“The (traditional) U.S. axis has the potential to split into two further axes: those aligned with the U.S. and those not,” he said. 

The isolationist path of the U.S. is raising questions about whether economic growth can continue at the clip that has been helping pension returns over the last decade or more. Even the U.S. Federal Reserve reduced its outlook for gross domestic product (GDP) growth to 1.7 per cent from 2.1 per cent, while inflation is forecast to grow and interest rate cuts could be off the table this year.

After Teachers’ turned in an annual return of 9.4 per cent for 2024, Taylor said his team had begun to assess whether the U.S. can continue to provide the fund with the same level of risk-adjusted returns to justify adding to the $99 billion invested there.

“The question is, how much more do we want to build on top of that versus other parts of the world?” he said.

Kroner said portfolio managers considering how to play the evolving situation should move away from investing in traditional global indexes such as MSCI World and All Country World indexes, which provide exposure to a broad basket of large and mid-cap stocks in developed countries and emerging markets, and instead create new indexes that reflect the shifts and splintering of alliances and trade.

He said pensions should also focus on higher-growth segments of the market that prioritize innovation.

“To overcome the growth deficit, one should invest heavily in markets where innovation is best supported,” he said. “Arguably, that’s what we’ve done for decades, but that might no longer be the U.S., like it has been historically.”

Kroner said pension managers should be the repricing the risk of investing in Europe, particularly countries in the NATO alliance.

“No matter how you slice it, the risk of investing in NATO countries is elevated and will remain so for a few years,” he said.

In one scenario, pension managers could reprice the risk of NATO countries as a whole, taking the view that Trump’s stance will affect them all negatively. In another, the risk for investments in counties most likely to feel threats from Russia if U.S. support wanes, such as Poland, could be repriced.

In either scenario, Kroner said, assets should be reallocated to countries outside NATO based on the changing risk-reward calculus.

“The risk is a broad geopolitical risk,” he said, adding that he favours the first scenario. “The alternative is to go through all the NATO countries and come up with a personal view of the Trump impact on each individual country, and that’d be a challenging exercise to get right.”

Homegrown challenges

Some “homeshoring” — reallocating investment to a pension fund’s home market — is an obvious strategy, he said, though this is potentially a difficult one for large Canadian pension funds whose managers have complained for years that large, private infrastructure investments — from toll roads to airports — aren’t made available to them.

They have also pushed back on pressure to invest more in Canadian companies via stock markets due to concerns it would lead to overconcentration in their home market and a reduction in long-term returns generated through diversification.

After Teachers’ reported its latest annual results in March, Taylor reiterated the former.

“We’ve stated for a while that we have a strong desire to try to invest more in Canada in larger assets,” he said.

Another alternative would be for the pension giants to shift investments away from NATO countries to similar economies, such as Latin America and Asia, Kroner said.

“What I would do is move some percentage away from NATO (countries), say, five per cent,” he said. “Half of that would come home and half would go to a LatAm index and an Asia index.”

Within Asia, China presents its own risks for pension managers, though growth is not the primary concern.

“Investments in the China axis are extremely risky because of the very high risk that they become stranded assets,” Kroner said. “I’d recommend that institutional investors either avoid investing in this axis, or at least keep their allocations to something less than cap-weight” — a less risky way to invest in a basket of assets in an index.

The Canada Pension Plan Investment Board has significant investments in China, but its exposure, once representing more than 10 per cent of assets, has been declining since 2021 and the fund has committed resources and attention to other countries in the Asia-Pacific region.

Teachers’ and others in the Maple 8, including the Caisse and British Columbia Investment Management Corp., paused direct investments in China in 2023 and Teachers’ plans to close its Hong Kong office this year while targeting a doubling of investments in India over the next five years.

Concerns about China came to the fore a couple of years ago amid government and regulatory crackdowns on tech businesses, but the world was still more or less perceived to be under the steady hand of the U.S.

With that in the rearview mirror, Kroner said institutional investors should be preparing for some pretty bad outcomes, including wars.

“But,” he said, “nothing has changed on this front since Trump, in that investors should always prepare for bad outcomes” through good risk management and scenario analysis that look at what could happen to a portfolio in very bad scenarios.

“The only difference this time is that Trump has made some of these negative scenarios pretty easy to envision,” he said.

As Wall Street closes out its worst quarter since 2022, every large fund (not just pension funds) is trying the navigate the noise from Trump's tariffs.

It's a big problem and while the inclination is to shift away from the US to domestic or ex-US assets, I do agree with Kenneth Kroner, AIMCo's former Chair (featured above), it would be wise to resist making impulsive decisions based on the latest news.

The truth is nobody knows where Trump is headed with these tariffs.

Moreover, I have my doubts that his own administration knows. 

All I know is Trump 2.0 is off to a terrible start and if it's one thing you need to remember about Trump is he's incredible vain and will likely fold on tariffs when the going gets tough.

In that  regard, he's highly predictable.

In fact, last week, when he caught wind that Canada and the EU were coordinating a response, he showed his cards by panicking and stating the will significantly increase tariffs if that were the case.

That is telling but it shows you Trump doesn't really want to start a tariff war.

The good news is by the end of the week, we will know where his administration stands on tariffs.

The bad news is they might go through with these tariffs in the near term as a form of negotiation and that will wreak havoc on global markets and possibly send the global economy including the US into a recession.

More bad news might also come in the form of US economic data that confirms a recession has arrived.

This week we get the ISM tomorrow and then the big jobs report on Friday.

Thus far, the market is in RISK OFF mode and rates are creeping higher as investors price in stagflation.

I don't get carried away with short-term movements but it's clear growth and hyper growth stocks are bearing the brunt of this policy uncertainty.

Still, I noticed stocks came back strong today, especially growth stocks which were selling off hard at the open.

This tells me the market is sniffing out lenient tariffs but we are also closing out a bad quarter, portfolio rebalancing is helping cushion the blow and adds to volatility.

Whatever happens the rest of the year is anyone's guess.

Will stagflation prevail? Are we headed to a long tariff war which causes a global economic recession?

Again, nobody really knows, all long-term investors can do is diversify and be ready to seize opportunities as they present themselves. 

Below,Scott Wren, Wells Fargo Investment Institute Senior Global Market Strategist, and Victoria Greene, G Squared Private Wealth CIO, joins 'Closing Bell Overtime' to talk the impact of tariffs on the market.

Next, Doug Rediker, founder and managing partner of International Capital Strategies, says the Trump tariff plan is fraught with uncertainty and Wednesday's announcement likely will bring only some clarity.

Third, Chris Verrone, Strategas Research Partners chief market strategist, joins 'Closing Bell' to discuss markets, making sense of the sector rotation and more.

Lastly, Joseph LaVorgna, SMBC Nikko Securities America chief economist and former Trump Economic advisor, and Mark Zandi, Moody’s Analytics chief economist, joins 'Closing Bell Overtime' to talk the impact of tariffs on the economy.

Pia Signh and Sarah Min of CNBC report Wall Street sell-off deepens on inflation worries, Dow closes 700 points lower:

Stocks sold off sharply on Friday, pressured by growing uncertainty on U.S. trade policy as well as a more grim outlook on inflation.

The Dow Jones Industrial Average closed down 715.80 points, or 1.69%, at 41,583.90. The S&P 500 shed 1.97% to 5,580.94, ending the week down for the fifth time in the last six weeks. The Nasdaq Composite plunged 2.7% to settle at 17,322.99.

Shares of several technology giants dropped, putting pressure on the broader market. Google-parent Alphabet lost 4.9%, while Meta and Amazon each shed 4.3%.

This week, the S&P 500 lost 1.53%, while the 30-stock Dow shed 0.96%. The Nasdaq declined by 2.59%. With this latest losing week, Nasdaq is now on pace for a more than 8% monthly decline, which would be its worst monthly performance since December 2022.

Stocks took a leg lower on Friday after the University of Michigan’s final read on consumer sentiment for March reflected the highest long-term inflation expectations since 1993.

Friday’s core personal consumption expenditures price index also came out hotter-than-expected, rising 2.8% in February and reflecting a 0.4% increase for the month, stoking concerns about persistent inflation. Economists surveyed by Dow Jones had been looking for respective numbers of 2.7% and 0.3%. Consumer spending accelerated 0.4% for the month, below the 0.5% forecast, according to fresh data from the Bureau of Economic Analysis.

“The market is getting squeezed by both sides. There is uncertainty around next week’s reciprocal tariffs hitting the major exporting sectors like tech alongside concerns about a weakening consumer facing higher prices hitting areas like discretionary,” said Scott Helfstein, head of investment strategy at Global X.

Helfstein added, however, that the news on inflation and consumer spending “was not that bad” and could simply represent a hiccup in near-term sentiment as investors struggle to understand the Trump administration’s new policies.

“Despite today’s sell-off and broader market volatility of the past few weeks, there have not been big inflows into money markets. It seems like a lot of investors are trying to ride this out,” he said.

The latest inflation report comes amid a flurry of tariff announcements from the White House, which have roiled the market in recent weeks. Investors are looking ahead to April 2, when President Donald Trump is expected to announce further tariff plans, for further clarity.

On Friday, Canadian Prime Minister Mark Carney told Trump that the Canadian government will implement retaliatory tariffs following Wednesday’s announcements. Bloomberg earlier reported that the European Union is identifying concessions it could make to Trump’s administration to reduce the reciprocal tariffs from the U.S.

Trump earlier this week announced a 25% tariff on “all cars that are not made in the United States,” a decision that hurt auto stocks and raised concerns of an economic slowdown.

Jennifer Shonberger of Yahoo Finance also reports the Fed’s inflation dilemma just got more challenging as Trump's new tariffs loom:

The Federal Reserve’s preferred inflation gauge showed prices in February rose more than expected, re-intensifying the central bank’s inflation battle at a time when it expects new tariffs from the Trump administration to push prices higher.

The new reading makes it more likely that officials hold rates at current levels for longer as policymakers look for signs of how President Trump's policies will affect the US economy in the months ahead.

"It looks like a 'wait-and-see' Fed still has more waiting to do," said Ellen Zentner, chief economic strategist for Morgan Stanley Wealth Management.

"Today’s higher-than-expected inflation reading wasn’t exceptionally hot, but it isn’t going to speed up the Fed’s timeline for cutting interest rates, especially given the uncertainty surrounding tariffs."

Fed Chair Jerome Powell has said that his "base case" is that any extra inflation from Trump's slate of tariffs will be "transitory." But some of his colleagues worry the effects could be more persistent, adding to the uncertainties ahead for the central bank.

The Fed's goal is to get inflation down to its 2% target, but the key measure released Friday remains well above that marker. The "core" Personal Consumption Expenditures (PCE) Index, which excludes volatile food and energy prices, rose 2.8% year-over-year.

That reading was higher than economists' estimate of 2.7%, jumping from 2.6% in January. The month-over-month reading was also hotter, clocking in at 0.4%. That was higher than the 0.3% expected and up from that same level in the previous month.

Inflation now stands at the level the Fed predicted it would be at year's end — and that's before some of Trump's most aggressive tariff plans kick in. The president plans to announce a sweeping set of "reciprocal" country-by-country duties next week.

Fed officials raised their 2025 inflation forecast at a meeting last week, to 2.8% from 2.5% previously, due in large part to uncertainty surrounding the new tariffs. They also lowered their economic growth forecasts for the year.

But February’s inflation report now shows that even the Fed’s revised inflation forecast may prove to be too conservative.

'Transitory' — or not?

Traders are still pricing in an interest rate cut in June with the potential for another cut in the fall. And the two-cut prediction from Wall Street still matches what Fed officials estimated at their meeting last week where they held rates unchanged.

Some Fed watchers, however, argue that these rate cut predictions could be challenged, too.

The new PCE reading "reinforces our view that the Fed is unlikely to cut interest rates this year," said Stephen Brown, deputy chief North America economist for Capital Economics.

The critical question ahead for Fed policymakers is how much of any additional inflation they expect to see is a one-off effect that will prove to be temporary.

While Powell has argued in favor of a potential "transitory" effect, some of his colleagues have offered more caution.

Boston Fed president Susan Collins said Thursday while speaking in Boston that she believes it’s “inevitable that tariffs are going to increase inflation in the near term” and she expects the uptick in inflation could be short-lived.

But she added, “there are risks around that and depending on how that unfolds, it could be more persistent.”

Collins stressed that if there are additional rounds of tariffs, they are more broad-based, or if there are different levels of retaliation, then inflation could be more persistent than just a relatively fast adjustment to a higher level of prices.

In that context she said she would be looking more closely at inflation expectations because anchoring expectations is important for the Fed’s credibility to bring inflation back down.

St. Louis Fed president Alberto Musalem also said this week that he could be "wary of assuming that the impact of tariff increases on inflation will be entirely temporary, or that a full 'look-through' strategy will necessarily be appropriate."

He noted that tariffs could create a one-time increase in price-levels, but that so-called "indirect effects" where domestic producers raise prices as importers raise prices could cause inflation to be more long lasting.

Musalem offered the example of beer from Canada. If it is subject to a 25% tariff, US consumers could shift from Canadian beer to American-made Budweiser, and then Budweiser could increase its prices as people look for locally produced goods.

"Distinguishing, especially in real-time, between direct, indirect, and second-round effects entails considerable uncertainty," he added.

It's been a tough week for markets as tariffs and inflation fears loom large.

On inflation, tariffs or no tariffs, it remains the big wildcard for the second half of the year.

Obviously, I agree with those who think tariffs will not lead to "transitoty inflation," that's pure nonsense especially if a full-blown tariff war breaks out.

But I remain unconvinced that Trump really wants a tariff war and this week we got a sense of why when he threatened higher tariffs on Canada and the EU if they combine forces to slap tariffs on the US.

That just tells me that Trump is very worried about that possibility and he's just using tariffs to negotiate.

However, he made a huge mistake slapping a 25% tariff on all foreign cars, not realizing how intertwined the supply chains are between Canada and the US, not to mention many Japanese, German and Korean automakers have invested billions in US plants and make cars there.

It's a complete and utter mess and now that "Liberation Day" is right around the corner, many are bracing for chaos, including US ports.   

Again, I don't think Trump really wants a full-blown tariff war with other nations risking to plunge the US and world into a recession but I could be wrong.

A global recession will mean growth fears will dominate inflation fears, yields will plunge.

If however we manage to get past this tariff tantrum, growth moderates but inflation persists, then that will wreak havoc as rates will remain elevated, the Fed  will not cut and stagflation will develop.

Stagflation could develop with tariffs too but I see more of a growth risk there, meaning unemployment will soar and inflation will be capped.

Either way, the way stocks are trading, it's clear big investors are worried about persistent inflation and a recession.

Growth stocks are bearing the brunt of the selloff in Q1:

 As shown above, Energy stocks (+8%) lead the S&P year-to-date followed by Healthcare (+5%) and Utilities (+3%).

And if you look at the best and worst large cap stock year-to-date, you see a clearer picture of what is going on, especially looking at the worst performing large cap stocks so far this year:

 

But the focus remains on Mag-7 stocks, all of which are struggling.

Look at the charts below of Nvidia, Microsoft, Google and Meta for this month:

Nvidia shares are retesting their low from earlier this month, Microsoft shares are making a new 52-week low, Google and Meta shares are sliding lower.

I can tell you it's pretty much the same for Amazon and Apple and we all know what's going on in Tesla shares this year.

The way mega cap and hyper growth stocks are selling off this past quarter, it's a huge re-rating based on expectations of higher rates.

Is this another golden buying opportunity or the start of a long and painful bear market where big tech shares lead the market lower?

I can't answer that just yet, I need one more quarter to figure out if inflation expectations are picking up.

Below, Tom Lee, Fundstrat, joins 'Closing Bell Overtime' to talk the state of the markets and the impact of tariffs.

Also, Bob Elliott, Unlimited CEO, and Richard Bernstein, Richard Bernstein Advisors CEO, join 'Closing Bell Overtime' to talk the days market selloff.

Lastly, 'Fast Money' traders react to the day's market selloff. 

Next week is a big week, tariffs, ISM and jobs data all coming up.

Between 2020 and 2024, South Carolina’s job growth meaningfully outpaced job growth nationally. Our recent report analyzes the state’s economic boom in recent years, fueled in part by federal investments in the Bipartisan Infrastructure Law and the Inflation Reduction Act. A key industry in the state is manufacturing, especially tires, auto, and auto parts manufacturing. South Carolina’s political leaders boast that the state leads the nation in the export of tires and completed passenger vehicles.

Even before federal investments spurred the state’s manufacturing growth, lawmakers were using generous economic development subsidies to lure manufacturing to South Carolina. While the state’s approach has created jobs, the quality of those jobs and the overall benefit to South Carolina communities—at substantial public cost—remains dubious.

Chester County, South Carolina, is a prime example. Between 2014 and 2023, growth in manufacturing jobs in Chester County vastly exceeded that of South Carolina as a whole—43.7% compared with 14.3%.1 As a result of successful efforts to attract corporations to Chester County, it is home to more than 50 manufacturers across industrial sectors, including Giti Tire, a Singapore-based tire manufacturing company featured on the Chester County Economic Development website.

Despite the rapid growth in manufacturing in Chester County, its residents, particularly the ones living in the city of Chester, are seeing limited benefits from that growth, despite generous subsidies to manufacturers for locating in Chester County. Giti Tire, for example, received over $35 million from the Coordinating Council for Economic Development’s Rural Infrastructure Fund as well as $12 million in local tax breaks between 2018 and 2022, with at least $4 million more per year expected at least through 2026. The company promised to create 1,700 jobs. Their website indicates they began production in 2017 and surpassed one million tires in 2018. Yet their Chester plant employs between roughly 600 to more than 900 workers, with the most optimistic number being just over one-half of the promised number of jobs.

This highlights one of the many problems with economic development subsidies: They frequently lack any penalties for subsidized companies that fail to meet their promises. Further, many subsidies that go to corporations are not coupled with requirements that local communities benefit. Rather, many subsidies simply divert tax dollars away from investments in local schools, public roads, and health care. This has been particularly problematic in Chester, which faces some of the largest losses of public school funding to tax abatements, losses which have increased in almost every year since 2017 with the exception of 2020 when it remained roughly stable.

Workers and families in Chester recognize that the benefits major corporations receive for locating in their communities go far beyond just subsidies. Chester provides manufacturers with broad access to varied transport options for importing raw materials and exporting finished goods including by railroad, port, and major highway networks. Auto and tire manufacturing particularly benefit from their proximity to other auto and auto parts manufacturers and related supply chains supporting these manufacturers.

Of course, the region’s greatest asset is an available workforce, ready to work if given access to quality jobs. Chester is an area that has long been neglected by state lawmakers and whose residents have been exploited by corporations historically and continue to be exploited today, including by large multinationals like Giti Tire.

For decades, lawmakers in South Carolina have embraced an economic development strategy common in the South, centered on disempowering workers and communities, keeping wages and benefits low, and limiting worker protections. South Carolina is one of just five states in the country that does not have a state minimum wage.2 It is one of two-dozen states with a so-called right-to-work law, which guarantees neither workers’ rights nor a job. Instead, these laws make it more difficult for workers to build and sustain a union, one of the most effective avenues for workers to collectively demand a living wage, safe workplaces, and basic benefits such as health insurance and paid sick days.

As we illustrate in our recent report, these policies and the state’s history of strong opposition to multiracial worker solidarity have left South Carolina with the lowest union coverage rate of any state in 2023, and the third lowest rate in 2024.

These factors are compounded by a range of labor market disadvantages faced by Chester residents. Table 1 shows both Chester County (35.8% Black) and the city of Chester (64.3%) are disproportionately Black compared with their counterparts nationally (12%) or statewide (25.1%). Just 8.4% of those in Chester County and 10.5% of those in the city of Chester hold a bachelor’s degree, roughly half the national (21.3%) or state-wide (19.4%) rate. Chester residents are also about twice as like to fall below the poverty line—19.3% of Chester County, 25% of the city of Chester, compared with 12.4% of Americans nationally and 14.2% of all South Carolinians.

Table 1

The higher poverty rates shown in Table 1 reflect to some degree low median wages. Median earnings in Chester County ($44,908) and the city of Chester ($38,687) are just 74.7% and 64.4%, respectively, of the earnings of workers nationally ($60,096).

Workers in the Giti plant report that instead of hiring the promised number of workers, the company forces them to work mandatory overtime, in unsafe working conditions, and segregated by gender. Occupational sex segregation is a key factor in women’s lower pay relative to their male counterparts, and earnings data for manufacturing workers in Chester are consistent with this finding. The data show that in the city of Chester, women are paid just 57.1 cents for every dollar paid to male workers. Nationally, women in manufacturing are paid 77.5 cents for each dollar paid to men.

Investments in South Carolina need to benefit South Carolina communities. Lawmakers should not be raiding public funds for schools, roads, and hospitals to give subsidies to large corporations, and businesses being welcomed into communities like Chester should be creating good jobs for local residents. In Chester, and across the state, workers are coming together to demand higher wages and better working conditions, and they are supported by their communities, faith leaders, and unions. Employers and lawmakers should listen.

1. Author’s calculation of Bureau of Labor Statistics Quarterly Census of Employment and Wages (QCEW) data.

2. In states that lack a state minimum wage, as in South Carolina, the federal minimum wage of $7.25 per hour applies.

Today, Ontario Teachers' Pension Plan announced it acquired 92,000 sqm prime logistics portfolio in Sweden and Denmark:

• Ontario Teachers’ has completed the acquisition of a 92,000 sqm logistics portfolio from funds managed by Blackstone. The portfolio comprises three assets in Sweden and two in Denmark.
• The transaction marks the second acquisition by Ontario Teachers’ in the Nordic region, following its initial acquisition of a 121,000 sqm portfolio in Sweden in late 2023, and further strengthens its pan-European logistics portfolio which now comprises over €1.8 bn of logistics assets across all of the core European markets.
• The acquisition is undertaken together with Fokus Nordic, Ontario Teachers’ local operating partner.

Stockholm, 27 March, 2025: Ontario Teachers’ Pension Plan Board (“Ontario Teachers’”) has completed the acquisition of a 92,000 sqm logistics portfolio from funds managed by Blackstone. The portfolio consists of three high-quality assets in Sweden (Stockholm and Gothenburg) and two in Denmark (Copenhagen), all fully leased to leading logistics and distribution tenants. The acquisition marks Ontario Teachers’ Real Estate’s entry into Denmark and strengthens its growing logistics platform in the Nordics. The acquisition is undertaken together with Fokus Nordic, Ontario Teachers’ local operating partner.

The transaction represents the second acquisition by Ontario Teachers’, following an initial investment in Sweden in 2023. The aim is to build a diversified, institutional-quality logistics portfolio across the region, focusing on well-located assets that benefit from strong fundamentals and long-term tenant demand. The newly acquired assets are fully occupied with key portfolio highlights below:

• Total size: 92,000 sqm across five fully leased logistics assets
• Locations: Stockholm and Gothenburg in Sweden; Copenhagen in Denmark
• Assets: Slipskivan 6, Lanna; Ostergarde 31:21, Sorred; Arendal 1:8, Arendal; Ventrupvej 27, Greve, Litauen Alle 6, Taastrup.
  

Jenny Hammarlund, Senior Managing Director, Real Estate at Ontario Teachers’, said:

“This is a significant step in expanding our logistics footprint in the Nordics and further strengthens our pan-European logistics portfolio. By entering Denmark and scaling our presence in Sweden, we are reinforcing our commitment to high-quality assets in key logistics hubs. We’re delighted to be growing our portfolio which aligns well with our long-term investment strategy and offers opportunities to create additional value through active management.”

Tonny Nielsen, CEO at Fokus Nordic, said:

“We are very pleased to have completed our second transaction with Ontario Teachers’, which represents a successful cross-border effort from our teams in Stockholm and Copenhagen.” 

Ontario Teachers’ was advised by Gernandt & Danielsson, Accura, EY, and WSP.

About Ontario Teachers’

Ontario Teachers' Pension Plan Board (Ontario Teachers') is a global investor with net assets of $266.3 billion as at December 31, 2024. Ontario Teachers' is a fully funded defined benefit pension plan, and it invests in a broad array of asset classes to deliver retirement security for 343,000 working members and pensioners. For more information, visit otpp.com and follow us on LinkedIn.

About Fokus Nordic

Fokus Nordic provides professional advisory services within real estate investments to both Nordic and international investors. As one of the leading asset and investment managers in the Nordics, Fokus Nordic optimises the process of investing in and managing properties, maximizing value for our clients.

Across the Nordics we have more than €9 bn assets under management (AuM). We are well positioned in both Core, Core+, value-add investment strategies and our scale and extensive real estate know-how allow us to provide end-to-end solutions. For further information, please visit fokusnordic.com

It is worth repeating what Jenny Hammarlund, Senior Managing Director, Real Estate at Ontario Teachers’, stated above:

“This is a significant step in expanding our logistics footprint in the Nordics and further strengthens our pan-European logistics portfolio. By entering Denmark and scaling our presence in Sweden, we are reinforcing our commitment to high-quality assets in key logistics hubs. We’re delighted to be growing our portfolio which aligns well with our long-term investment strategy and offers opportunities to create additional value through active management.”

Ms. Hammarlund featured above is a key investment person in charge of building out OTPP's international real estate portfolio. 

She reports to Pierre Cherki, Executive Managing Director of Real Estate.

This asset was owned by Blackstone so you know its a top logistics asset in the growing Nordic region. 

Now OTPP and its partner, Fokus Nordic, will be in charge of maintaining it and adding value.

In total, the portfolio comprises three assets in Sweden and two in Denmark spans 92,000 sqm across five fully leased logistics assets.

These are the types of assets that Teachers' needs to find and invest in and it's not easy because they're is intense competition to own them.  

In related news, OTPP announced yesterday it completed its fourth investment into National Highways Infra Trust:

Mumbai - Ontario Teachers’ Pension Plan Board (Ontario Teachers’) today announced its participation in the latest follow-on unit capital raise by National Highways Infra Trust (NHIT), maintaining its 25% stake. NHIT is an Infrastructure Investment Trust (InvIT) sponsored by the National Highways Authority of India (NHAI), the Government of India’s nodal agency for national highway development.

Ontario Teachers’ invested INR 20.8 billion / CAD 344 million in this round. Combined with its earlier investments in NHIT in 2021, 2022 and 2024, this brings Ontario Teachers’ total investment in NHIT to INR 57.6 billion / CAD 950 million.

Proceeds from the follow-on unit capital raise will be primarily used to acquire 11 additional road concessions across north, central, and south India and to pay a concession fee to NHAI to be utilized for further development of road infrastructure in India. Following this, NHIT will own, operate, and maintain 26 toll roads in the Indian states of Gujarat, Rajasthan, Telangana, Karnataka, Uttar Pradesh, Madhya Pradesh, Maharashtra, Assam, West Bengal, Andhra Pradesh, Uttarakhand, and Chhattisgarh, spanning a total length of over 2,300 kms with concession periods ranging between 20 to 30 years.

NHAI, as the sponsor, invested 15% in the follow-on raise. The remaining units were placed with a diversified set of foreign and domestic institutional investors, including pension funds, insurance companies, mutual funds, banks and financial institutions.

“Our continued investment in NHIT reflects our long-term commitment to India’s infrastructure growth story” said Deb Hajara, Managing Director, Infrastructure & Natural Resources, Asia Pacific, Ontario Teachers’. “We’re pleased to partner once again with NHAI to help expand and modernize the country’s road network, an essential enabler of economic development and regional connectivity.”

About Ontario Teachers'
Ontario Teachers' Pension Plan Board (Ontario Teachers') is a global investor with net assets of $266.3 billion as at December 31, 2024. Ontario Teachers' is a fully funded defined benefit pension plan, and it invests in a broad array of asset classes to deliver retirement security for 343,000 working members and pensioners. For more information, visit otpp.com and follow us on LinkedIn.

About National Highways Authority of India
NHAI is an autonomous authority of the Government of India (GoI) under the Ministry of Road Transport and Highways constituted on June 15, 1989 by an Act of the Indian Parliament titled - The National Highways Authority of India Act, 1988. It plays a strategic role in GoI initiatives for growth & development of the Indian highway sector, and acts as the nodal authority for implementation of National Highway projects developed through public or private agencies.

Deb Hajara, Managing Director, Infrastructure & Natural Resources, Asia Pacific, Ontario Teachers’ sums it up well:

“Our continued investment in NHIT reflects our long-term commitment to India’s infrastructure growth story. We’re pleased to partner once again with NHAI to help expand and modernize the country’s road network, an essential enabler of economic development and regional connectivity.”

Yesterday I discussed why CPP Investments did a third follow-on investment of INR 20.8 billion (C$346 million) in the units of National Highways Infra Trust.

OTPP and CPP Investments are part of this project working with the NHAI and they have both committed to follow-on investments to modernize India's infrastructure.

OTPP invested INR 20.8 billion / CAD 344 million in this round. Combined with its earlier investments in NHIT in 2021, 2022 and 2024, this brings its total investment in NHIT to INR 57.6 billion / CAD 950 million.

That's one billion dollars invested in modernizing India's toll roads, quite impressive.

Below, Melinda McLaughlin, global head of research at Prologis, Inc . (NYSE: PLD), was a guest on the latest episode of Nareit’s REIT Report podcast. She discussed broad trends impacting logistics today, including global trade, delivery speeds, new construction, e-commerce, rising barriers to supply, standout global markets, and more.

Also, a week ago, Willy Walker sat down with Jon Gray, President and Chief Operating Officer at Blackstone, the world’s largest alternative asset manager with more than $1 trillion in AUM. 

With over three decades at Blackstone, Jon brings unmatched expertise in commercial real estate, private equity, and global financial markets. 

Great discussion, take the time to listen to it.

Workers of color make up more than 40% of the U.S. labor force, and that share is growing as more of the white non-Hispanic population reaches retirement age and recent immigration trends help sustain the growth of our labor force and economy. Over the last five years, workers of color—who identify as Black, Hispanic, Asian American and Pacific Islander (AAPI), and American Indian and Alaska Native (AIAN)—made significant gains in employment and earnings. This was a direct result of the Biden-Harris administration’s commitment to full employment during the post-pandemic recovery and the Federal Reserve’s successful navigation of a soft landing. But Trump’s anti-worker, anti-immigrant policy actions could soon erase this progress.

The broad-based nature of the labor market recovery is most evident when examining the employment-to-population (EPOP) ratio of prime-age workers between the ages of 25 and 54. Unlike the unemployment rate, the EPOP ratio is not influenced by changes in labor force participation since it captures the share of workers during a given period that have a job. The prime-age EPOP ratio is also less influenced by college attendance and the aging of the population when compared with the employment rate of all workers. As shown in Figure A, the employment rate of prime-age Black, Hispanic, AAPI, and AIAN workers hit record highs within the past few years. For example, the share of prime-age Black workers with a job reached a historic peak of 77.7% in 2023.

Figure A

The rapid and sustained labor market recovery also helped deliver stronger wage growth for workers of color (see Figure B). Black workers experienced the fastest wage growth of any group between 2019 and 2024. In fact, Black and Hispanic real wages grew more than three times faster over the last five years than the four decades prior, on an annualized basis. Much of this is explained by low-wage workers (who are disproportionately workers of color) experiencing strong wage growth since 2019, as the tight labor market with low unemployment compelled employers to expand their hiring networks and compete for workers by offering higher wages. 

Figure B

These historic gains should be protected and continued through a policy regime centered on low unemployment and pro-worker, pro-equity policies. Instead, all of these things are now under threat. Since taking office, President Trump has signed several executive orders centered on deporting migrants, including taking actions that will make it harder for migrants to legally work and support their families in the United States. He also signed orders ending critical diversity, equity, inclusion, and accessibility programs within the federal government, which were dedicated to promoting goals of racial and gender equity within the economy and beyond.

Further, President Trump has stifled the Equal Employment Opportunity Commission (EEOC) by illegally firing Commissioners Charlotte Burrows and Jocelyn Samuels, who were appointed by President Biden and confirmed by the Senate. As an independent agency, EEOC commissioners are intended to be insulated from presidential interference once nominated and confirmed. These illegal firings have prevented the EEOC from reaching a quorum to hear cases and fulfill its mission to enforce federal laws that prohibit employment discrimination and harassment.

Beyond these executive actions, the Trump administration has engineered an economic climate of chaos by announcing (and seemingly walking back) a temporary freeze of federal assistance and broad-based tariffs against trading partners.

But it’s not just Trump who poses a threat. Republicans in Congress are considering plans to gut the social safety net, including Medicaid, a move that would make economically vulnerable families pay for tax cuts for the wealthy. These efforts are likely to severely limit our capacity to recover quickly from the next economic crisis as well as exacerbate the persistently high levels of poverty that disproportionately burden families and children of color.

These policies don’t just threaten the historic gains for workers of color over the last five years. All workers and their families are now forced to contend with heightened uncertainty and chaos that put their employment and broader economic security at risk. As attacks on public-sector employment continue, and the prospects of a self-inflicted recession rise, it’s likely workers of color will once again be among the first to contend with setbacks, reversing the forward movement of the last five years.

In a move that starkly exposes just how disingenuous the Trump administration’s pro-worker rhetoric really is, President Trump rescinded the Biden administration’s executive order that increased the minimum wage for workers on federal contracts. The Biden-era rule implementing that executive order raised the minimum wage for workers on federal contractors to $15 an hour in 2022 and indexed it to inflation going forward. As of January 1, it was $17.75 an hour.

Trump rescinded this order two weeks ago and I’ve been struck by the lack of attention it has received. This action is not just a bureaucratic adjustment—it is a direct assault on the livelihoods of hundreds of thousands of workers.

When the Biden-era rule was being developed, we estimated that it would give a raise to nearly 400,000 low-wage federal contractors. Who are these workers? They are janitors who clean government buildings, food service workers on military bases, cashiers in gift shops in national parks, and security guards protecting federal property—everyday people trying to make rent, buy groceries, and support their families. A minimum wage of $17.75 an hour translates into annual earnings of less than $37,000 for a full-time worker. The Trump administration is acting to ensure they get even less.

The Trump Department of Labor (DOL) will need to go through the rulemaking process to actually overturn the higher minimum wage for federal contractors—just rescinding the executive order doesn’t overturn the rule that was put in place to implement it. Until that happens, the minimum wage for federal contractors is still technically $17.75. However, Trump’s DOL has publicly announced they will no longer be enforcing the higher minimum wage. In other words, there won’t be any consequences for not complying, inviting employers to cheat their workers.

It is not clear how low the Trump administration will ultimately set the minimum wage for federal contractors. If they revert the federal contractor minimum wage to what it was before the Biden-era rule, it would drop to $13.30 an hour. That would mean a 25% pay cut for a full-time federal contractor earning the minimum wage—a loss of over $9,000 a year.

The most drastic move the administration could take would be to eliminate the higher minimum wage for federal contractors entirely, which is well within the realm of possibility given that Trump has argued that a nationwide minimum wage “wouldn’t work” because of regional price differences.

If the Trump administration does end up eliminating the higher minimum wage for federal contractors, then federal contractors—unless they are in a state with a higher state minimum wage—will be subject to the disgracefully low national minimum wage of $7.25 per hour, which has not increased since 2009. Reverting to the national minimum wage of $7.25 would mean a nearly 60% pay cut for a full-time federal contractor making the minimum wage—a loss of roughly $22,000 a year. (It’s worth noting that all workers—not just federal contractors—need a higher minimum wage, but the president only has the authority to raise wages for federal contractors. It would require action from Congress to raise the minimum wage for all workers.)

For those who might believe that paying the lowest-wage federal contractors less could be a good-faith attempt at boosting government “efficiency,” think again. Rescinding this rule is much more likely to boost the profits of large government contractors—because they can pay workers less—rather than reduce the costs of government contracts.

To distract from his policies that actively harm workers for the sake of boosting the profits of their employers, Trump has floated gimmicky ideas like eliminating taxes on tips. Let’s be clear, “no tax on tips” isn’t a gift to workers, it’s a smokescreen that would benefit employers of tipped workers and harm more workers than it helps. If he really wanted to help tipped workers, he would push to end the subminimum wage for tipped workers and raise the minimum wage. Instead, he’s cutting minimum wages where he can—for federal contractors. But that’s Trump’s playbook: use pro-worker rhetoric while taking concrete steps to undermine workers’ rights and wages. Taking raises away from hundreds of thousands of low-wage workers while peddling a tax-break gimmick is just the latest example of his billionaire-first agenda.

Today, CPP Investments announced a third follow-on investment in India's National Highways Infra Trust:

Mumbai, INDIA (March 26, 2025) – Canada Pension Plan Investment Board (CPP Investments) today announced a follow-on investment of INR 20.8 billion (C$346 million) in the units of National Highways Infra Trust (NHIT), an Infrastructure Investment Trust (InvIT) sponsored by the National Highways Authority of India (NHAI). This marks the third follow-on investment by CPP Investments since its initial investment at the inception of NHIT in 2021.

The investment is part of NHIT’s capital raise by way of an institutional placement. The proceeds will be used by NHIT to partially fund the acquisition of eleven operating toll roads currently owned by NHAI. Following this investment, CPP Investments will continue to hold 25% of the units in NHIT, and CPP Investments’ total investment in NHIT will increase to INR 57.6 billion (C$960 million).

“India remains a strategic focus for CPP Investments, with infrastructure such as toll roads playing a key role in driving the country’s rapid economic growth. Our continued investment in NHIT since its founding is a testament to our commitment to this robust platform,” said James Bryce, Managing Director, Head of Infrastructure, CPP Investments. “We believe this follow-on investment is an excellent opportunity to generate attractive risk-adjusted returns for the CPP Fund.”

The acquisition will expand NHIT’s portfolio from 15 to 26 operating toll roads, all of which have been acquired from NHAI, a statutory authority established in 1988 by an act of the Indian Parliament, responsible for developing, maintaining, and managing national highways in India. Following the transaction, NHIT’s total portfolio will span over 2,300 kilometers across 12 Indian states: Andhra Pradesh, Assam, Chhattisgarh, Gujarat, Karnataka, Madhya Pradesh, Maharashtra, Rajasthan, Uttarakhand, Uttar Pradesh, Telangana, and West Bengal.

About CPP Investments

Canada Pension Plan Investment Board (CPP Investments™) is a professional investment management organization that manages the Fund in the best interest of the more than 22 million contributors and beneficiaries of the Canada Pension Plan. In order to build diversified portfolios of assets, investments are made around the world in public equities, private equities, real estate, infrastructure and fixed income. Headquartered in Toronto, with offices in Hong Kong, London, Mumbai, New York City, San Francisco, São Paulo and Sydney, CPP Investments is governed and managed independently of the Canada Pension Plan and at arm’s length from governments. At December 31, 2024, the Fund totalled C$699.6 billion. For more information, please visit www.cppinvestments.com or follow us on LinkedIn, Instagram or on X @CPPInvestments.

I'm going to keep my comments on this deal short.

No big surprise, James Bryce, Managing Director, Head of Infrastructure at CPP Investments sums it up well:

“India remains a strategic focus for CPP Investments, with infrastructure such as toll roads playing a key role in driving the country’s rapid economic growth. Our continued investment in NHIT since its founding is a testament to our commitment to this robust platform. We believe this follow-on investment is an excellent opportunity to generate attractive risk-adjusted returns for the CPP Fund.”

Funny how financial commentators are openly discussing the "end of American exceptionalism" and a bunch of nonsense I don't adhere to and the focus is now on Europe as they crank up fiscal spending there.

But India remains the big strategic investment over the long run because of its growing and young population and the best way for CPP Investments and others to play this theme is through infrastructure plays like toll roads.

It's a public-private partnership where CPP Investments invests in units of National Highways Infra Trust (NHIT).

Are there risks? Yes, a slowdown in India can impact these assets in the short run but over the long run, this is where CPP Investments and other large Canadian funds can best play the India theme, through investments in infrastructure.

There are plenty of other risks, currency, regulatory, reputation risks (CDPQ got hit with a bribing scandal there last year) but that doesn't change the immense opportunities that the country offers over the long run.

Speaking of long run,  CPP Investments CEO John Graham posted this on LinkedIn this week:

John is the Chair of FCLTGlobal, an organization committed to long-term investing.

Recall, Eduard van Gelderen, PSP's former CIO was appointed Head of Research at FCLTGlobal and I went over that when we caught up in November of last year (see my comment here),

I am having issues with their website lately, Norton antivirus keeps blocking it and I don't know why.

It's extremely annoying but I will end up fixing it.

Still, I want to thank Ashley Vogeli who works with John for sending me a summary of their summit that took place last month and I share these two pages with you:

I'm almost positive the guy on the second page sitting at table 7 is Derek Murphy, the former head of Private Equity at PSP when I was there (although I am wondering what the hell he's doing there).

Anyway, this is going to be a short comment, want to see the news and catch up on all the latest Trump tariff turbulence (so depressing, I can't believe a trade war is a real possibility).

Below, in this episode of Going Long, Sarah Williamson sits down with Thomas Buberl, CEO and Director of AXA, one of the world’s largest insurance companies, to discuss the future of insurance, risk management, and developing the next generation of leaders.

I also embedded a short clip on the future of India's highways.

Many of Donald Trump’s economic plans put forward during the presidential campaign seemed extremely unwise even to the corporate leaders who supported him and care about profits over everything else. Universal and large tariffs and mass deportations, for example, were clearly anti-growth policies that could hurt profit growth. Often, these corporate leaders and other campaign supporters pushed the narrative of a “stock market veto” that would keep the Trump administration from pursuing some of its most anti-growth policies. The thinking was that President Trump constantly invoked stock market increases during his first term as evidence of his good economic management, so any policy effort that could cause stock market declines would be quickly abandoned.

So far, the “stock market veto” has turned out to be nothing more than wishful thinking. In his second term, President Trump has continued to loudly proclaim his support for the anti-growth policies of broad and high tariffs and mass deportations. He has also added a new anti-growth twist of arbitrary and illegal firings of federal employees and cancellations of federal contracts. Finally, he has enthusiastically backed a U.S. House budget resolution that would slash disposable incomes for the bottom half of U.S. households. Besides being substantively unwise, these policy efforts have been undertaken with maximum chaos.

And the stock market has indeed rebelled. The S&P 500, for example, is down 8% in the last month.

This raises the question: Was there ever anything useful in the “stock market veto” view of the world? After all, there is no general correlation between stock market movements and what’s good for broadly shared growth, so it seemed odd to think a stock market veto would somehow come to the aid of the broader U.S. economy.

In what follows, we’ll present the good and the bad of stock market ups and downs and what they might mean for the trajectory of economic policy. In the end, it turns out that today the stock market and the economy are mirroring each other: Stock market weakness is reflecting broader economic weakness. In short, if there was ever going to be a “stock market veto” of broadly anti-growth policies, it is past time for it to kick in.

What does the stock market measure?

Most of the time when people are talking about the stock market, they are referring to an index that measures changes in the prices of stocks of a number of publicly traded companies. Examples are the S&P 500 index (which includes 500 firms) and the Dow Jones Industrial Average (which includes about 30 firms).

In theory, the stock price of any given firm reflects investors’ expectations about the returns they will see from holding its stock into the future. These returns include the annual dividends paid out from these firms to shareholders and the capital gain that would be available if shares were sold in the future (with the capital gain being the difference in price between when it is sold and when it was bought).

The stock market does not measure broader economic health

Because stock market prices generate a new data point every day (or even every hour), they tend to be discussed far more than broader measures of economic health. However, many know that the stock market has little to do with the economic health of U.S. households. For one, the stock market doesn’t tell us anything about jobs and wages. There are times when broad-based economic strength pushes up jobs, wages, and the stock market, and other times when broad-based weakness causes these all to fall together. But more often what is happening to stock prices gives us no insight into the wider economy. And as we will talk more about below, there are times when stock market strength can be a pure zero-sum transfer away from the wages of typical workers—reflecting stronger profits earned solely from successful wage suppression strategies.

Because most households depend overwhelmingly on wages from work as their primary source of income and not returns from wealth-holding, the stock market tells us nothing about these households’ economic situations. The wealthiest top 10% of households own over 85% of all corporate stock, and the top 1% alone own roughly 50%. Roughly half of all U.S. households have essentially zero invested in the stock market, even when including indirect investments they might have, like holdings in 401(k)s.

What causes stock prices to rise or fall?

There are dozens of reasons why an individual firm’s stock price might rise or fall. A drug company might announce the discovery of a new blockbuster drug. An oil company’s stock might rise if the global price of oil begins rising. For the stock market as a whole, it is usually macroeconomic trends that cause increases or decreases in stock indexes. But just because it is macroeconomic trends that drive overall stock indexes, this does not mean they always move in the same direction—sometimes favorable macroeconomic trends can push up stock prices, but sometimes they can actually push stock prices down.

Overall pace of growth

One macroeconomic influence that can affect stock prices broadly is expectations about the pace of economic growth in the future. If, for example, investors believe that economic growth will accelerate in coming years, this should (all else equal) lead them to believe that profits will accelerate, and this should lead to some combination of faster dividend growth or higher capital gains in the future. Expectations about the pace of future economic growth can be driven either by expectations of long-run productivity growth (how fast the economy can grow on average over long periods of time holding inputs fixed) or by expectations about the business cycle (i.e., whether the economy is about to enter or emerge from a recession).

Redistribution from wages to profits

A redistribution of income from wages to profits is another macroeconomic influence that affects stock prices. For any given rate of expected growth in corporate sector income, the value of owning stock rises if profit’s share of this income rises. A number of things influence this distribution of corporate income between profits and wages. A rise in monopoly power in product markets, for example, will boost profits and therefore raise the share of corporate income claimed by shareholders. Similarly, a decline in labor’s bargaining power in labor markets will also cause such a redistribution by boosting profits. For example, some estimates indicate that nearly half of the rise in real corporate sector wealth between 1989 and 2017 can be attributed to a zero-sum transfer from wages to profits.

Reduction in corporate income taxes

U.S. corporations pay income taxes on their profits. Reductions in this corporate income tax rate (either through legislation or tax avoidance strategies) will hence make any $1 in pre-tax income more valuable to investors, and this will broadly bid up the price of stock.

Interest rate movements

We’ve established that the price of a given stock represents investors’ expectations of the returns to owning this stock in the future. But whenever future gains must be assigned an economic value to compare with current values, one must use an appropriate discount rate, which measures how much more valuable $1 is today than $1 is a year from now. Even ignoring inflation, there are reasons for this discounting. For example, people are impatient and $1 in consumption today is valued more highly than $1 next year. Further, every $1 in consumption foregone today can be invested and yield more than $1 next year.

The measure of how much money invested today can earn over the next year risk-free is usually proxied by something like the rate of return to U.S. Treasury bonds, which are assumed to never default. As discount rates fall, the value of wealth today rises. This means that falling interest rates push up the current value (and price) of the stock market broadly. This effect is sometimes underrated in how powerful it can be. Say that you think stock prices generally reflect what investors believe returns will be over the next 10 years. In this case, a fall in interest rates from 7% to 3%—essentially the fall we have seen over the past 30 years in the U.S. economy—will boost the value of stock prices by almost 20%.

The Trump administration’s policy agenda is weakening the economy—including the stock market

The real value of the S&P 500 rose a stunning 27% in the last year of the Biden administration. Further, the share of corporate sector income claimed by profits instead of wages remains extraordinarily high in historical terms. Despite this, many felt after the election that stock markets would continue rising during the Trump administration because they inherited a fundamentally strong macroeconomy that would continue to generate profit (and wage) growth. Further, the inflationary spike of the immediate post-COVID recovery was clearly over, and there seemed to be some room for the Federal Reserve to reduce interest rates.

There was zero concern among investors that the Trump administration would raise taxes on corporations, and even some hopes that they would be cut further. Finally, the first Trump administration was a never-ending assault on institutions and policies that provide bulwarks to typical workers’ leverage and bargaining power in labor markets. These assaults had been successful in keeping real wage growth lower than one would have expected based on historical experiences with unemployment rates as low as what prevailed in the late 2010s. In short, as long as the second Trump administration did not do something extremely stupid to upend the strong inertial growth they were inheriting, their tax policies and their policy aim of redistributing money from wages to corporate profits were expected to bolster stock prices.

And yet stock prices have been falling in the past month as the Trump administration’s policy agenda comes into clearer view. The agenda is anti-growth and inflationary—a rare and bad combination. Slowing overall growth will slow profit (and wage) growth in coming years, which will depress stock prices. The administration’s illegal cutbacks to federal employment and contracts—and the spending cuts in the House budget resolution (if passed)—will drag sharply on economy-wide demand. The chaotic tariff policy and threatened mass deportations will constitute a large and inflationary supply-side shock. This will both slow growth and provide a real obstacle to the Federal Reserve continuing to cut interest rates.

The current Trump administration has predictably launched a number of attacks on workers’ bargaining power, and these might prove effective in boosting profits at the expense of wages. But the profit share of income in the corporate sector is already starting from an extremely elevated level, making further increases likely harder to attain. Further, the effect on stock prices of any such redistribution will likely be overwhelmed by the broader downward pressures noted above.

If a recession caused by the Trump policy agenda (as well as by any consumption cutbacks spurred by the falling stock market itself) is sharp enough, the Federal Reserve will cut interest rates. Given what we noted about the powerful effect of interest rate cuts on stock prices, this could halt the fall in stock prices and even provide some slight rebound. But by then the damage to the real economy— households’ jobs and wages—will have been done.

In short, while the stock market isn’t the economy, the stock market declines we have seen in recent weeks are genuinely worrying. They are a symptom of much larger dysfunctional macroeconomic policy that will likely soon start showing up in higher unemployment and slower wage growth for the vast majority. If ever there was a time for the “stock market veto” to activate, it is right now.

Josh Recamara of Insurance Business Magazine reports Ontario Teachers' Pension Plan is reassessing its private equity strategy:

Ontario Teachers’ Pension Plan is reassessing its private equity strategy, moving away from full ownership of companies and focusing more on partnerships. The shift aims to mitigate risk and address the growing complexities of managing portfolio companies, Bloomberg reported. 

The fund, which oversees around $266.3 billion, has historically acquired companies outright through its private equity division while co-investing alongside partners and external managers.  

Moving forward, Ontario Teachers’ will increase its reliance on partnerships rather than direct ownership, CEO Jo Taylor said in an interview. With ongoing economic and geopolitical uncertainty, Taylor said working with partners helps reduce risk. 

“You dial back the risk by doing it with a partner rather than doing it on your own,” he said. 

Changing investment approach amid market challenges 

Ontario Teachers’ shift comes as Canada’s largest pension funds, known as the Maple Eight, are reconsidering their investment strategies. These funds collectively manage about $2.3 trillion and have traditionally focused on long-term, direct investments, often taking full ownership of companies they back.  

However, a prolonged slowdown in deal-making, high interest rates, and global trade uncertainties have prompted a reassessment of these models. 

The shift away from full ownership reflects broader industry trends. In private equity, institutional investors are increasingly favouring co-investments and partnerships with external fund managers to spread risk and improve operational efficiency. This is especially relevant as high interest rates make leveraged buyouts more expensive and economic uncertainty affects valuations, Bloomberg said.  

“Assets are taking more time, resources and effort to get to their full potential,” Taylor said. “Having partners who can help with that journey and actually that work is often a way of sharing the load.” 

While the fund is reducing direct investments in new companies, it is still pursuing expansion through acquisitions within its existing portfolio. Insurance broker BroadStreet Partners, for example, has continued to grow by acquiring other firms. 

Taylor did not rule out buying controlling stakes in companies but indicated that full ownership will be less common going forward. 

Leadership changes in private equity division 

Ontario Teachers’ is also restructuring its private equity leadership. Dale Burgess, the new interim executive managing director for equities, has taken on responsibility for private equity along with infrastructure and natural resources. The fund is evaluating leadership needs in private equity before making further appointments, Taylor said. 

Former senior managing director Jean-Charles Douin, who led direct private equity investing from the London office, left last year and will not be replaced. Iñaki Echave, who previously co-led the private capital team for Europe, the Middle East, and Africa, now oversees the fund’s private capital efforts in that region, Bloomberg reported.  

Kirk Falconer of Buyouts also reports Ontario Teachers’ private equity chief Romeo Leemrijse to depart:

Romeo Leemrijse, head of Ontario Teachers’ Pension Plan’s private equity strategy, is leaving the organization, according to an e-mail statement shared with Buyouts.

Leemrijse, named executive managing director of the global Equities group two years ago, “recently decided to leave,” the Ontario Teachers’ statement said. The reasons for his decision were not disclosed.

Ontario Teachers’ will conduct an internal and external search for new leadership “over the coming months,” the statement said. In the meantime, Dale Burgess, executive managing director and head of infrastructure and natural resources, will oversee Equities.

Burgess is “well-positioned to support a smooth transition,” the statement said, both as a senior member of the investment team and due to his existing relationships in Equities.

Leemrijse, a former GP with Edgestone Capital Partners, joined Ontario Teachers’ in 2006. Previously a group sector head in private equity, leading direct investing in North America, he was promoted to head of Equities in January 2023, replacing Karen Frank.

Ontario Teachers’ C$108 billion ($75 billion) Equities houses one of the institutional community’s largest private equity operations. With a portfolio of more than C$60 billion at the end of December, the strategy, known as Private Capital, allocates resources to both direct and fund investing, but with directs accounting for roughly 80 percent of the total.

As such, Ontario Teachers’ routinely buys direct stakes in companies and manages them in-house. Investing $100 million-$1 billion on average, Private Capital seeks opportunities in North America, Europe and Asia, and in sectors like digital and IT services, diversified industrials and business services, financial services, healthcare, sustainability and energy transition, and technology.

Deals done in recent months include Max Matthiessen, a co-control acquisition with Nordic Capital, and Omega Healthcare, in which Ontario Teachers’ became a co-lead investor alongside Goldman Sachs Alternatives.

This heavy weighting toward directs appears set to change owing to rising global uncertainty and a challenging deal market. In a Bloomberg interview, CEO Jo Taylor said Ontario Teachers’ aims to mitigate risk by focusing private equity activity “more on a partner basis.”

It is not clear whether Taylor’s comments reflect a fundamental shift in Private Capital’s traditional approach to the asset class, including a rejigging of the 80:20 directs-funds ratio, or merely a tactical response to market conditions at present.

Ontario Teachers’ is not the only large Canadian institution rethinking the extent of its directing investing. Last fall, OMERS said it would curtail the scope of directs undertaken by OMERS Private Equity and reintroduce fund investing, a significant move away from past practice.

OMERS this month announced the hire of Alexander Fraser as its new global head of private equity.

Ontario Teachers’ earned an overall 9.4 percent one-year net return last year, growing assets to more than C$266 billion. The private equity portfolio generated an 11.7 percent return against a 23.7 percent benchmark.

Let me get right into it.

First, the departure of Romeo Leemrijse, now the former head of Teachers' Private Capital.

I learned about it a couple of weeks ago and was very surprised.

Romeo has a stellar reputation, he's an experienced PE professional with high IQ and high EQ which is rare in this industry and from what I was told "he didn't have enough time to carry out his changes which is a shame". 

It is a shame but this industry is cutthroat and when the going gets tough, heads start to roll and sometimes good people get caught in the crossfire.

In private equity over the last three years, there were changes in leadership at CDPQ, CPP Investments, OMERS and now OTPP.

Only BCI has kept its PE leader, Jim Pittman, because he has the right strategy and he and his team are delivering the requisite long-term returns (and he has the full backing of BCI's CEO Gordon Fyfe).

So what's going on? 

Basically, the landscape has changed dramatically over the last few years, higher for longer, intense competition and geopolitical risks means large Canadian pension funds need to lean a lot more on their strategic partners in private equity and other private asset classes to deliver the returns they're seeking by co-investing alongside them on large transactions.

Put bluntly, the purely direct investing model is on its way out going forward, Canada's large pension funds that were doing it, mostly OMERS and Teachers' Private Capital are doing an about face and shifting back to fund investments/ co-investments to mitigate risks, enhance returns and most importantly, maintain a healthy allocation to the asset class as they grow.

From the first article above: "Taylor did not rule out buying controlling stakes in companies but indicated that full ownership will be less common going forward."

That pretty much sums it up right there.

And from the second article:

It is not clear whether Taylor’s comments reflect a fundamental shift in Private Capital’s traditional approach to the asset class, including a rejigging of the 80:20 directs-funds ratio, or merely a tactical response to market conditions at present.

I doubt this is a tactical response to market conditions at present, it more of a shift in strategy given the structural changes in the industry forcing them to react.

When I spoke to Jo last week going over their 2024 results, he shared this with me on private equity:

Let's not forget Private Equity has been a fabulous asset class for Teachers' over 20 years, we made lots of return in Private Capital over a long time and if it's having a bit more challenges at the moment, which I think it is, I think we have to be quite careful that we don't forget how much it's generated for the business.

If I had any question on Private Equity at the moment, it's probably around what's the right mix for us around direct investing on our own and co-investing with friends on a partner basis.

Remember we shifted to more direct investing on our own and I think the world is sufficiently uncertain at the moment that a few more deals with a few friends is more sensible.

[...]

I think what we are trying to figure out is what are the skills in the senior team more broadly than just the head and how do we pull that together.

We have some great people in our Private Equity team and I've been around the business for a long time.

But equally from time to time, we a looking how we in a relatively purposeful but agile way adapt to current circumstances. 

It's hard at the moment to find new investment opportunities that are high quality and well priced.

Keep in mind Jo Taylor is a private equity expert, that's his background so if he's telling you it's tough out there, it's tough out there and they need to make sure they have the right strategy in place to keep producing stellar returns in that asset class.

Alright, let me wrap it up there.

Below, Joseph Bae, Co-CEO, KKR discusses what's driving private equity returns and where its finding value across the market with Bloomberg's Sonali Basak at Bloomberg Invest.

Great interview, take the time to watch it.