In a recent NYSE (ICE) TV interview, Stash Graham, managing director and chief investment officer of Graham Capital Wealth Management, warned that tariffs could set off a negative feedback loop in the stock market. As consumer spending contracts and manufacturing orders decline, falling profits could lead to lower share prices and a diminished wealth effect.
Watch the interview above and check out the transcript below. The transcript of this conversation has been lightly edited for length and clarity.
KRISTEN SCHOLER (KS): My next guest is Stash Graham. He is managing director and chief investment officer of Graham Capital Wealth Management. Stash, thank you so much for joining the show this morning. With fractional losses for the S&P 500 and the Dow. How is the market interpreting the president’s latest tariff talk?
STASH GRAHAM (SG): Good morning, Kristen, and happy Liberation Day to all those who either celebrate or, I guess, cry. I think you’ve primarily already seen the movement. You’ve seen earnings revisions come down week after week for the last two, three months. So, Kristen, I think there’s some degree of pricing in this. I think the interesting part over the next few days will be: Do we have a buy-the-rumor, sell-the-news dynamic? But right now, again, you have businesses across the country trying to figure out if they already haven’t tried to front-run tariffs, and we’ve seen that show up in the manufacturing data, some of these other industries that maybe are indirectly affected by tariffs. What’s going to be their game plan in the coming quarters, how will they deflect higher costs, and ultimately how will they continue to maintain market share without really increasing prices too much, which ultimately loses that market share for the consumer?
KS: Should the consumer be prepared for inflation? Should they get a head start? We’ve seen the soft data indicate that they are, in fact, anticipating an increase in the pace of price gains.
SG: Kristen, this is going to be one of the major variables that people should watch over the next month or two: How will the hard data and the soft data meld? As you mentioned, soft data has been consistently bearish and pessimistic. The last one to two months, say, come into December, but the hard data really hasn’t reflected in that soft data. Now, there have been moments. We just saw consumer spending or the Atlanta Fed came out with their GDP forecast, which updated yesterday. It showed that consumer spending PCE came down by 0.6%. It’s not too often you see contractions in consumer spending over a quarter without it being associated with some type of recession. So we’re not in a recession, not yet, but we have to watch what these impacts are because we are a consumption-based society.
KS: What does this mean for stock performance? I think many strategists on this show anticipated that we would see very strong economic growth this year, that the tariff talk was just a negotiating tactic, that President Donald Trump’s visit here at the New York Stock Exchange was a bullish sign for stocks. But of course, we’ve seen that environment change over the course of the past six weeks.
SG: Absolutely. Kristen, again, as I mentioned a couple of minutes ago, we have seen earnings revisions and expectations get revised lower over the calendar year of 2025. But, right now, the consensus is still expecting 10-11% of earnings per share growth through the S&P 500. We believe that’s too high right now. This is a common question we get: What are the impacts of tariffs? Will we see it immediately to your prior question? No, not necessarily. But again, in certain parts of our economy, we’ve already witnessed it. We saw a front-running or a pull-forward of manufacturing orders. Now, on the other side of it, we just saw an update where one of the recent regional Fed reports showed that manufacturing new orders really has collapsed over the last 30 days. So we’ve already seen a bullwhip effect within manufacturing. But I think the larger issue, and again, going back to a prior question you had in regard to consumption, is if consumers consume less, their real disposable income continues to fall behind inflation, their real disposable income falls, their consumption should shrink if they’re not borrowing on credit. What does that do to business revenue if they can’t sell the same amount of goods that they were expecting? Lower profits and lower profitability means lower share prices, and that means a lower wealth effect. And it all has, unfortunately, a loop and a feed on itself. So we haven’t seen it yet. The loop hasn’t started, but it is something we should be watching over the next quarter or two.
