About this episode
Who stands to be the biggest loser if free trade starts to unwind? Who stands to gain? Chief Market Strategist Troy A. Gayeski, CFA dives into his latest strategy note on how investors can respond to tariff-induced volatility.
Troy joins Content Strategist Harrison Beck to outline his framework for understanding the current, trade war-inflected environment. He examines what a “Galactic Mean Reversion” means for equities, how U.S. consumer and bank strength is challenging recession narratives and how investors can prepare for what may come next.
“The thing to remember is that pockets of dislocation and uncertainty are often where you find your best investment opportunities.” –Troy A. Gayeski
Transcript excerpt
[00:00:00] Harrison Beck: Who stands to be the biggest loser if free trade starts to unwind? Who stands to gain? I’m Harrison Beck, FS Investments Content Strategist. It’s been a wild few weeks with evolving trade policies, sending markets into wild volatility, and investors are looking to prepare their portfolios for what’s happening now and what’s likely to happen next. Luckily, we’ve got FS Investments Chief Market Strategist Troy Gayeski here to make sense of it all. Welcome, Troy.
[00:00:43] Troy Gayeski: How are you Harrison?
[00:00:45] Harrison Beck: I’m doing good. Where are you recording from today?
[00:00:47] Troy Gayeski: Actually, our home studio office in Connecticut. So, very excited to be with you all and looking forward to a lot of good content to get through.
[00:00:58] Harrison Beck: Sounds good. Well, let’s get into it. Now, Troy, you’ve outlined two really useful frameworks for understanding the current tariff-inflected environment, and both can be found in your two most recent strategy notes on fsinvestments.com/insights. One is the Keynesian formula for GDP. And another is a term you coined with a name that truly communicates the cosmic gravity of today’s tense economic landscape, and that’s the galactic mean reversion. This is a concept you first gave investors in 2022, and now, as you say in your recent strategy note, it’s back. So what is the galactic mean reversion, and why do you call it that?
[00:01:40] Troy Gayeski: If you look at the chart that you see in front of you, what you can tell is that U.S. equities represented by the S&P 500, again, market cap weighted—the largest, greatest companies in the world are principally based in the U.S. and traded on U.S. markets, has had outrageously better performance than even corporate profit growth, which has been very, very good and we’ll get into that more. Certainly, many orders of magnitude higher than we’ve seen nominal GDP growth, the real GDP growth or even money supply growth. And so, the whole concept of galactic mean reversion we came up with, late ’21, early ’22, because two of the most powerful forces that drove that outrageous outperformance of U.S.-listed equities relative to nominal GDP.
