February was a cold, dark and thankless month for the markets. After rising nearly 3% to start the year in January on top of a very strong 2024 performance, stocks gave back ground in February. Further, I observed some names sell off on good news. That has correlated with market tops in the past. Is it just a bout of profit taking or are we at a negative inflection point?
Is the U.S. consumer finally rolling over?
The U.S. economy remains on strong footing with the job market very robust and capital investment by companies at elevated levels. The main detriments are inflation and higher interest rates. My focus remains on the consumer, since this is the largest determinate of economic growth (consumer spending is 2/3 of the U.S. economy as you know). Further, as a consumer-focused analyst, I am talking to retail, restaurant and other companies every week. These businesses are reporting that spending in January and February was softer. Professional investors are probing for the cause. For example, a large restaurant operator this week told me that recent investor questions “have become more near-term focused.” Companies are sticking with their start-of-the-year playbook, which is to blame cold weather. I am not getting too bothered. In my 25 years of experience, I have found that January and February are very poor months to use as a barometer for the health of the consumer. These months typically feature the lowest volumes of spending during the year and are often influenced by weather (hence making it a great excuse), the timing of tax refunds and other factors. For now, I think the consumer is fine.
Follow the Tariff-Bricked Road Directly to a Recession?
Maybe the consumer is fine, but volatile policy and communication from the administration is not helpful. Professional investors and company management teams are spending a lot of time trying to figure out how tariffs, deportations and other fun stuff will impact both individual company results as well as the overall economy. Since the news is in constant flux (can you please stay off Twitter during the weekend, Mr. President?) the range of outcomes is dynamic and difficult to define. In reaction, some investors appear to be hesitating, notably with stocks that have performed well and require a robust economy to keep growing at expected rates. This was definitely a factor behind February’s market weakness.
My personal view is that it is too early to guess how some of these policies or threatened policies from Washington will play out. This puts me in the not-so-worried camp. Of course, not-so-worried always looks like hopelessly naive in retrospect when bad things happen. To that point, this morning I read though an overly-intellectualized analysis of tariffs, exchange rates, employment, deficits and military spending and other stuff from a Mizuho economist. This gentleman concluded by ascribing probabilities to various outcomes and providing investment approaches for each. My view is that the future is not so neatly divvied up. In particular, and as I have written before, economic models can’t predict innovation, nor account for unpredictable exogenous events like conflicts or natural disasters. Fear the tariff regime and its impacts anyway? My approach and my advice is to invest in companies with internal drivers and solid balance sheets, not to try to position for the most probable economic outcome. Hopefully the stocks I buy will not be derailed by random legislative action. Only four more entertaining years.
Travel update: In early February, I attended the VALUEx value investing conference in Klosters, Switzerland. I gave a presentation on the master franchisee of Domino’s Pizza, which is called DPC-Dash and trades on the Hong Kong exchange. You can watch a nine-minute version of the pitch on my youtube channel.
On Monday I am flying to NYC to attend the Target analyst day. I am also looking forward to giving a guest lecture at Columbia Business School. This will be my 7th occassion speaking at the securities analysis course. Last year I gave a talk on avoiding investment errors. This year’s chat will be on finding great stocks. I’ll upload a condensed version of the talk later in the month.
*This is not a recommendation. Please consult your advisor for investment advice tailored to your risk tolerance and investment profile.
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John Zolidis
President & Founder
Quo Vadis Capital, Inc.
John.zolidis@quovadiscapital.com
Mr. Zolidis has more than 25 years’ experience as an equity analyst. In 2017 he founded Quo Vadis Capital, Inc., a Registered Investment Advisor (RIA) offering investment management for individuals and an idea service for professional investors. He is a frequent presenter at value investing conferences around the world and a guest lecturer at Columbia Business School. Prior to founding Quo Vadis, Mr. Zolidis was a sell-side analyst following the consumer sector. He also managed money in a buy-side role at a long-short equity fund over 2013-2014. He was named in the Wall Street Journal’s Best on the Street list in 2005. He was named a RETHINK retail Top Retail Expert for 2025. He started his career in finance in 1996 following degree studies in Philosophy at Kenyon College and the University of Oxford. Mr. Zolidis and works from New York, NY and Paris, France or wherever he has his laptop.
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