Reader Mailbag: May 2026

Can you feel it? Summer is just around the corner! The mercury is climbing, kids are counting down to the school year’s end, grills are getting cleaned for Memorial Day cookouts, and our mailbag is chock full of late-spring goodies.

Why didn’t we see more of an impact from tariffs?

This is an interesting one because the (frustrating) truth is tariffs’ effect is impossible to know with certainty since the counterfactual—what would have happened without last year’s “Liberation Day” tariffs—is unknowable. It may well be that the effect was huge, that without tariffs the US economy would have enjoyed a rollicking acceleration last year but instead ambled along with private-sector GDP growth in line with recent trends. There is no way to quantify it.

So let us come at the question a different way: Why didn’t tariffs induce a recession and bear market, confounding those worst-case scenario forecasts? We see some simple reasons. One, after delays and deals, most tariff rates were much, much lower than the initial announcement.

Two, headline tariff rates were kind of a mirage, as the taxes had numerous exemptions. Effective tariff rates ended up far below what you would get if you simply applied headline tariff rates for each country to its total US exports. This we can illustrate with data. The World Bank initially estimated America’s average tariff rate at around 28%. But actual collections put it under 10% last year. Some estimates are even lower based on the Supreme Court’s upending most Liberation Day levies in February. If the Court of International Trade’s upending of President Donald Trump’s 10% global replacement tariff stands, the Tax Foundation puts the effective levy at 5.7% this year.^[i] That is higher than pre-2025, but far less than feared.

Three, companies found workarounds. Four, the US economy had enough underlying strength that tariffs couldn’t quash demand. Consumers and businesses swallowed the bitter pill and moved forward, adjusting plans and budgets as needed to soldier through. We think this is what stocks anticipated as they rallied hard after the post-Liberation Day crash. They rightly priced the better-than-expected reality to come.

When and why does volatility occur?

Randomly, at any time, for any or no reason.

We know that probably isn’t what you want to hear. Our human brains are wired to hate portfolio declines much more than we like gains, and it is natural to think that if we could somehow figure out the precise triggers and timing, it would be possible to take avoiding action. But pullbacks and corrections (sharp, sentiment-induced drops of -10% to -20%) don’t operate on schedules. You can go years without a correction, then have two in a one-year span. A second correction can begin a week after the one before it completes its round trip to all-time highs.

We can observe general trends and tendencies, like our observation that corrections are common in midterm election years, but that doesn’t guarantee a correction happens and isn’t a timing tool. Mostly, it is a call to prepare mentally. Steel your nerves, remind yourself corrections end as suddenly as they begin, know your weaknesses and do what you need to do to avoid temptation to react to it.

Do all China’s investments in clean energy and electric vehicles put the US at a disadvantage?

Nah. We think it is actually the opposite. In economics, there is a concept called “malinvestment,” which is basically throwing good money after bad for minimal returns. This isn’t a statement on the quality of solar panels or EVs or whatever. But we see a lot of evidence China’s investments in these areas fit that definition, as they left the country with a massive supply glut when production far outstripped local demand.

In developed countries without command-and-control economies, when businesses overextend like this, a recession comes along and squeezes out the excess, getting everyone lean and mean and ready to grow again. It is painful but necessary medicine. Recessions are an anathema to China’s leaders, who depend on steady growth to continue generating employment, which is key to social stability. So you instead get this weird paradox where local governments plow money into expanding industrial production in search of quick returns while the federal government tries to surgically address overcapacity. This tension has been at the heart of China’s industrial policy for more than a decade, alongside perpetual concerns about weak demand. And it tends to result in a flood of subsidized exports. We doubt this is a problem the US, UK, Europe or any economy purportedly disadvantaged by China’s model wants to replicate.

Do you see younger investors’ skepticism affecting stock returns?

We reckon you are referring to the popular notion that younger folks suffer what the olds call “financial nihilism,” which wraps up economic pessimism and the general sense that past generations pulled up the drawbridge behind them, leaving no opportunities to attain the same living standards. We have oodles of empathy for these folks, and when we see things like society’s response to the housing shortage, we totally get it. No judgement here.

But here is the fun part: That pessimism about society hasn’t actually translated to pessimism about the stock market. There are some cool studies that weigh investor sentiment by generation, and they all find older cohorts are more pessimistic than younger folks. For instance, last summer one digital investment shop found “Gen Z (67%) and Millennials (53%) are significantly more confident than older generations, suggesting that having a longer time-horizon and more tools at their disposal provides a buffer against short-term market uncertainty.”^[ii] A survey from Nationwide Retirement Institute had similar findings. And back in hot-inflation 2022, amid a shallow bear market, a MagnifyMoney survey found that while only 44% of Americans overall believed they would be wealthy at some point in their lifetime, 72% of Gen Z respondents thought they would. Other reports show young folks back feeling with action, saving diligently in their 401(k)s.

Now, we don’t think any of this affects the market. Stock demand depends on people’s overall willingness to buy regardless of how many people participate. And general feelings about long-term investing’s benefits may not always factor into a specific stock decision. But everyone always worries the kids aren’t alright, and we think it is cool to point out that, actually, they are figuring it out.