Ken Fisher on Tariffs and Volatility, Sequence of Return Risk, and More – July 2025

Transcript:

[Transition Music]

Naj Srinivas

Hello and welcome to the Fisher Investments Market Insights podcast, where we discuss our firm's latest thinking on global capital markets and current events.

I’m Naj Srinivas, Executive Vice President of Corporate Communications here at the firm. Today, we’ll hear from founder, Executive Chairman and Co-Chief Investment Officer of Fisher Investments, Ken Fisher.

In this episode of Market Insights, Ken answers some common listener questions to help you better understand the world of finance and investing.

But before we dive in, I'd like to ask you a favor. Recommend our podcast and rate it wherever you listen. In just a few minutes, you can help make this valuable information available to even more people. Thanks so much for your help, in advance.

With that, let's dig in with this month’s Ken Fisher mailbag. Enjoy.

[Transition Music]

Ken Fisher

So every month, these questions come in. You know what I call the mailbag? And I try to answer a few of them quickly. Which is virtually impossible for me to do? I tend to talk too long. But if you've seen me do any of this kind of stuff before, you know I talk too long.

Anyway, the first one here is do you anticipate more drops in the market like we saw after Liberation Day? And do you think the current administration realized it was a mistake? That’s two questions. Let's break those two questions down into two separate things not related to each other. First, stocks are volatile. Corrections come at any time for any reason or no reason. The correction that we had in the aftermath, of, so-called Liberation Day, April 2nd with the announcement of the tariffs was a big, full fledged correction in a bull market that had actually peaked temporarily, leading to a correction weeks before Liberation Day itself.

But the drop itself was from top to bottom, almost 20%. And the definition of a correction is a drop bigger than 10%, but not as big as 20%, with anything bigger than 20 traditionally being classified as a bear market, anything less than 10% classified as just noise inside a normal bull market. So do I anticipate more drops? Of course. Do I know when they’ll be? No, I don't. Is the market volatile? Yes it is. It always has been. And with a little luck, it always will be, because volatility on the downside in corrections helps if you will, purify a bull market for the next leg up in it. As I speak to you now, not the S&P 500, but the world's stock market actually has hit all-time highs, by any of the global indexes with America lagging and the non-US world leading. But we're back on to new bull market highs.

Now do I think the administration realized that April 2nd was a mistake? I think you got to break that down in two parts. Did they realize they made some kind of mistake? Absolutely. Because if they didn't, that having been done on April 2nd, they wouldn't have done what they did on April 9th was to put so-called reciprocal tariffs, which aren't really reciprocal at all. They wouldn't have had them put on hold for 90 days while they tried to negotiate deals. Yet they would have just come out the gate starting that way. And I know for a fact that they didn't have a plan on April 2nd to come out the gate starting that way. They thought they just do the reciprocals and universals, as they originally announce them.

But the fact of the matter is, I don't know that the administration thinks the tariffs in and of themselves are a mistake, or that any given level of tariff is in itself a mistake and as I speak, we're not yet through the end of that 90 days, so that'll really come, when we come around to approximately just after the 4th of July, and when we get to just after the 4th of July, we'll see where the administration really intends to go with all this. And you hear lots of stories, and I don't actually know what's true, but I haven't seen any sign yet that the administration has learned that the basic lesson that I always say, which is that tariffs are worse for the country that imposes them, than the countries that they're imposed upon. And pretty much never cure the problem that the country is trying to cure when they impose the tariffs and won't in any full scale this time.

So another question coming to me is, can you explain your thoughts on sequence of return risk? And in your book Debunkery, you stated that the fear of one big bear and you're done is misplaced. But wouldn't experiencing a big bear earlier in retirement impact someone more than later? So here's the way I see this.

Absolutely. The questioner is correct that if you suffer a bear market decline earlier than later, it's worse. Why? Because if you have a market that's down 20% and then rallies 20%, you're not back to where you started. And so if that's kind of what you have, or down 30, back up 30 or down any other number back up, that doesn't equalize. It's just the way math works. You play the math game for yourself. You know, take 100, drop by 20, take that, gives you 80, take the 80 and add 20% to the 80. And you go up to another 16 until it gets in 96. That's a fact and the fact is also that bear market are followed by bull markets. Bull markets are longer than bear markets and bigger. Bull markets take you to significant new highs. And even if you retire and that's the beginning of your investing, which doesn't actually make sense. Most people should be investing long before they retire. And then immediately you step into a bear market. You aren't destroyed because of that function.

Now, mind you, I say this because most people do not have a great ability to figure out where they are, and they shouldn't be saying, boy, I'm not going to get invested because I know there's going to be a bear market ahead someday. So I'm going to wait for the bottom of the bear market, because I don't want what I've got to potentially fall. Because the odds are, when you look at history, that you're not about to go into a bear market. You might. The odds are that bull markets are much longer than bear markets and much bigger that you're more likely in that point. But yes, if the bear market hits when you start, it's worse than if the bear market hit later on.

But the bigger the power, the compounding in the interim but mathematically but said simply, take an example like 2000 to present. If you started in 2000, you were going to face a big global bear market that lasted almost three years. And one of the not not the biggest by far, but one of the bigger bear markets. And yet if you then look after that and you see the subsequent returns, they dwarf that bear market. And so even though it would be better if you could avoid it, most people can't. They don't have an ability as particularly as a novice investor, to say, boy, this is when the bear market is about to hit. They may say it, but they're probably not right.

They're better off suffering that and going on and holding on throughout the rest of the progress over time. Afterwards, in the long cumulative period of their retirement, where they need those funds to work for them, then if instead they just held out and missed. Now let me take the next point.

Let's say you're a novice investor. You haven't invested before. It's all been in 401 K's or what have you and really pay too much attention and suddenly you retire. You say, boy, now I got to pay attention, but I think it's going to be a bear market. Let's say you're lucky and you're right. The odds, then, that you don't get in at the right time afterwards are overwhelming. I've seen people do this forever. The people that are lucky and right as they start off calling a bear market tend to hold off and not get back in when the bull market goes to new highs. They tend to hold off, hold off, hold off thinking they were right before and that they'll be right again and miss the bull market. And if you do that they're way worse than if they did nothing at all.

My advice to you is don't worry so much about sequence of returns as worrying about capturing the long-term benefit of capitalism and the stock market, which is actually a phenomenal thing both in our history and will be in our future.

US credit card debt and delinquencies are rising. What effect does this have on stocks and could it cause a recession?

The answer is this goes on and off and on and off over my entire adult career. And the fact is, it never causes a recession. It won't this time. Is it a potential impediment to growth? Yes. Is it big enough to cause a recession? No. I can give you a lot of reasons for that, but that won't cause recession.

And of course, it's impossible in this day and age. No matter what happened to not get some question about Donald Trump. And the, question this time is since Donald Trump became president for his second term, the traditional relationship between rising interest rates and a strong dollar has broken down. What might be the explanation for this?

Two things. One. The concept that there was a traditional relationship between interest rates on the dollar is way less than perfect. Remember, we live in a global world, and it's our interest rates against their interest rates, our currency against their currency. In a global world, that's always a totality. That is, on a global basis, the only falling currency, a global falling currency, is the fall to inflation. So otherwise, it's a zero-sum game about currencies. On interest rates, it's not the only thing ever that's impacting people's reaction to the dollar. Let me help you with that.

Short-term rates of course are set by central banks. Long term rates or free markets set. There's an age old saying, which is kind of mostly true or not perfectly so that presidents tend to get the currency they want. If they want a strong currency, they tend to get it. If they want a weak currency, they tend to get it. It's a foolish thing, which many think, but is wrong to think that a weak currency will make your country's products cheaper and therefore have foreigners buying more of your products. That view, I believe, is the view of the administration that a weak dollar will help offset, negative impacts of the higher costs associated with tariffs on manufactured goods.

There is potentially some effect to that. But there's another thing going on same time. And that's that the tariffs scare capital away from America. And in fact, that's what's been going on this year in a world where there hasn't been huge interest rate shift. We have a vibrant bull market outside of America and a flattish U.S. stock market.

And in that flattish U.S. stock market., and of course, if you look at the U.S. stock market in that foreign currency, as we talk about it, as you talk about it in the question, the US stock market moves actually negative across the world outside of America and almost every country, every currency, because of the weak dollar, the bull market goes on vibrantly overseas.

We have a down to flat market depending what currency you're looking at in America. And that's a reflection of capital being pulled out of America, not singularly but heavily in reaction to the tariffs. So when you ask, why is it now that currencies weak, when our short-term rates are not going down and other countries short-term rates are going down, which intuitively is not what you would expect, it's because of the flight of capital associated with fear of what happens to America associated with the tariff.

Thank you for listening to me. I hope you found this useful and beneficial.

[Transition Music]

Naj Srinivas
That was Ken Fisher answering listener questions as part of his monthly mailbag. Thanks to Ken for sharing his insights with us.

If you want to learn more about the topics discussed today, you can visit the episode page of our website, Fisher Investments.com. You'll find a link to that in the show description. While you’re on our website, you can also subscribe to our weekly digest, which rounds up our latest commentary and delivers it right to your inbox every week. And if you have questions about investing or capital markets that we can cover in a future episode of Market Insights, email us at marketinsights@fi.com.

We'd love to hear from you, and we'll answer as many questions as we can in a future episode.

Until then, I'm Naj Srinivas. Thanks for tuning in.

Disclosure:
Investing in securities involves the risk of loss. Past performance is no guarantee of future returns. The content of this podcast represents the opinions and viewpoints of Fisher Investments and should not be regarded as personal investment advice. No assurances are made we will continue to hold these views, which may change at any time based on new information, analysis, or reconsideration. Copyright Fisher Investments.