All right, welcome back, everybody. The S&P trending for its second positive week in a row. Joining us right now in the markets is John Mowrey. He is NFJ Investment Group CIO and senior portfolio manager. And John, I'm wondering, what are you hearing from your clients at this point? The market's been whipsawed. We're all over the place. What kind of questions do people have, and what do you tell them when they come to you and ask what to do?
Great question. There's two big concerns right now. The first is tariffs, and the second is what's going on with the national debt. With regard to tariffs, I'll start there because I'd like to discuss both. Tariffs are very simple. They're just a tax. There's only two ways a company can deal with the tax. They either push it through to the end customer or they absorb it in their margin. And to be honest...
President Trump says, right.
They do. And I'll be honest, I really, I empathize with President Trump because there's no company that has a mastery of the supply chain more than Walmart. But I really didn't like that he said that they should eat it, because when you go public, you subject yourself to a whole other group of shareholders, and the shareholders get to decide management. If they want to eat it, that's going to drive down the stock. So I really didn't like that he said that. And I think that it undermines the very nature of capitalism that is embedded in public equity markets. So when I look at what's going on, I think that there are opportunities being derived from what's going on with the variability of earnings because of tariffs. So, for example, apparel, autos, industrial machinery, these areas are being impacted by what's going on with tariffs. But I think that creates opportunity because of the uncertainty around the earnings variability. And you're getting much lower multiples, Becky, in these areas today.
Okay, I was just looking at the Walmart shares. We had it up. Those shares are up, I didn't realize, 10% since the Trump tariffs were enacted on some of these things, too. It's up 10% year to date. But I believe we just showed a chart. If you can go back to Walmart since the tariffs began.
Yeah, it's really interesting how markets react to things based on what people say and then what actually occurs. I mean, Walmart, again, they haven't done that, right? They haven't. And they have not chosen to do that.
So Walmart's been the ones that went to China and said to their suppliers, you're going to have to take a lot of this on. And they've been pushing back on price increases.
Probably in a position to handle it better than anyone. But the S&P, the S&P is almost at an all-time high.
It is. It is. And I think that there's a lot of positives. Walmart, yeah, Walmart's a big piece of that. And the mega caps have carried it. I mean, this has been a mega cap trade for a long time now. And in fact, I was going to mention this because since the end of 2020, the S&P is up 70, small caps are up seven. So this has been a mega cap rally. Money has just flooded into the big companies. They've been impervious to all of this. And it makes sense. They can deal with tariffs so much easier. They have so many levers to pull.
This reminds me of COVID, when the small companies really struggled, but the large big boxes were allowed to stay open. It's true. They're going to be the ones that have the advantage.
It's true, it's true. So they're benefiting from this. But I think that has created opportunity. When you look at other areas, I want to touch on debt. Can we talk about the debt for a second? So I hear all these people and they're all talking about that the reason rates are up is because of the deficit and because of debt. And Joe, you've made the point that interest rates have just really normalized. So I want to make a couple of observations. Since 1960, total debt for the US, the CAGR for that is 7.6%. That's the growth rate for the US debt. Okay. If you look at the defense budget, I hear a lot of people saying, well, we're spending as much on interest as we are for the defense budget. Well, the defense budget grows at 4.5%. So it makes sense that we would spend more on interest, particularly when rates are up. And when I think about how America likes to spend its money, there's lots of things we spend money on. Interest rates are just back to where they were in 2006 and '07, around 4.6. And if you look at the median going back to 1980, that's including when they went to 15%. Okay, you're right. At the median, 15. Or if you go back to 2015, 2016, there was an article in the Wall Street Journal that said that the Danish, okay, had floating rate mortgages they had taken out, and they were getting paid interest. This was insane. It was totally insane what was going on with low rates. Rates have normalized. So I don't really buy that the reason that rates have normalized is because everyone's worried about deficits and debt. And I think there's another way to think about US debt, and that is if you look at the total debt divided by the total market cap of the equity markets, it's 70%. It's much lower than actually a lot of other countries around the world. And our country is made up of companies. It's just like a university. A university is nothing but a bunch of buildings, right? But what makes it a university is the people that go there, the students and the faculty. That's what makes Harvard. That's what makes Princeton. That's what makes all the schools. This country is just a group of companies, and it's what sets us apart. And I would argue that, just like you...
Think it's okay to continue to grow our debt.
Well, I'm just being a realist. I'm just being a realist. If you look at what's going on...
Well, okay, I'll make this point. Trump's bill adds 30 to 50 basis points per year to the national debt. That's actually lower than the long-term average. The long-term average has been higher. It's been more like 100 basis points. The reason for that...
