This Week In Review | Tariffs in Court, US Jobs, AI Bubble Fears & Recent Volatility

Transcript

Scott O’Leary:

Hello and welcome to This Week in Review. This weekly segment is designed to highlight a few important developments you may have missed this week, what they may mean for markets, and most importantly, the potential impact for investors.

To stay up to date with our latest market insights, subscribe to our YouTube channel or visit FisherInvestments.com. Now, let's review what happened this week.

First, the US Supreme Court reviews tariffs. The US Supreme Court is back in the spotlight this week, hearing arguments on whether tariffs imposed under the International Emergency Economic Powers Act are legal. The Trump era tariffs sparked key constitutional questions such as are they a tax, something only Congress can authorize, or a regulation of foreign trade which falls under presidential authority. Lower courts have already ruled against the tariffs. And as we noted in a recent Market Minder piece, justices across the ideological spectrum sounded skeptical during Tuesday's hearing.

Justice Sonia Sotomayor noted that tariffs generate revenue from Americans, by definition a tax. Justice Neil Gorsuch underscored that taxing power rests with Congress, not the White House.

While the final decision remains uncertain, growing attention to potential outcomes is paradoxically a plus for markets. As we've written before, markets thrive on clarity. The more scenarios investors can consider now, the less room there is for surprise later. Whether the court upholds or overturns the tariffs, the spotlight itself is stabilizing. Markets dislike uncertainty. And this case, whatever the result, is helping to remove some of it.

Next, US job market data. September's labor reports offered fresh perspective on a cooling US job market. Growth continues to slow and layoffs have picked back up after a mid-year lull. ADP data shows private employers shed jobs in August and September before modestly rehiring in October.

Meanwhile, high-profile layoff announcements are back in the headlines. They haven't reached the peak seen in March, but they remain among the highest since the pandemic. For investors, it's critical to view this in context. Layoffs, while painful for those affected, often help firms streamline operations, trim costs and improve efficiency, all of which can support profitability and in turn, stock performance.

So, remember, jobs data are lagging indicators. They tell us what has happened, not what's ahead. Markets, by contrast, look forward, pricing in expectations for growth and earnings over the next few years.

For long-term investors, the key is staying focused on those forward-looking trends rather than reacting to short-term noise.

Finally, bubble concerns and recent market volatility. Over the past week, tech stocks have faced some turbulence, with declines of more than 1% on several trading days. As we film, the Nasdaq Composite is now down about 5% from its October 29th high. Naturally, this has sparked concerns about whether we're on the verge of an AI bubble burst. With excitement around artificial intelligence, or AI, still running high, some are even drawing comparisons to the late 1990s.com boom and bust.

But today's market environment is fundamentally different. AI investment is concentrated among profitable, well-capitalized tech giants with real earnings and cash flow, not speculative startups burning cash and issuing stock to stay afloat. Valuations reinforce the contrast. The Nasdaq's forward price-to-earnings ratio remains far below dot-com-era extremes.

And rather than a surge in stock issuance, a hallmark of bubbles, global equity supply is only modestly growing. Ironically, the constant search for signs of a bubble may itself be bullish. Widespread fears of euphoria is the opposite of euphoria. That skepticism suggests this bull market still has room to run.

Finally, when markets get choppy like this, it's natural for investors to look for a specific reason or cause. But remember, market volatility is a normal part of investing. It can happen at any time, for any reason, or sometimes for no reason at all. But over the long term, stocks have historically delivered strong growth despite periods of turbulence. Staying focused on long-term goals and not getting distracted by short-term market swings can help you navigate these ups and downs with greater confidence.

That's it for this week. Thanks for tuning in to This Week in Review.

If you're looking for more insights, then don't miss our other series, Three Things You Need to Know This Week, released every Monday. You can also visit FisherInvestments.com anytime for our latest thoughts on markets.

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