May 2025 Market Commentary: America’s brand equity
by Yuval Ezer, CFA
Investors have experienced a volatile environment since President Trump returned to the political spotlight earlier this year. In previous letters, we’ve discussed his trade policies and the impact of tariffs on the stock market and the broader economy. Let’s now consider what this new policy regime could mean for the market, US companies, and the global economy.
For over a decade, investors enjoyed a tailwind of supportive fiscal and monetary policy: ultra-low rates, easy access to capital, rising financial asset prices, and relatively low volatility. That environment has shifted. Since 2021, interest rates have normalized to levels we haven’t seen in decades, and both fiscal spending and monetary policy have become more measured. The implication is simple but important. The path ahead, while still encouraging, may be bumpier and more uncertain, especially as global trade dynamics evolve and the US reconsiders aspects of its international economic engagement. The market swings we’ve seen this year could be a preview of how the next couple of years might unfold, particularly under a renewed Trump administration. But instead of reacting to short-term headlines, we at FV are focused on understanding the deeper implications of this regime change over the medium and long term.
In the realm of decision-making, particularly within the often-turbulent waters of investing, the distinction between first-level and second-level thinking proves to be a critical determinant of success. Howard Marks, co-founder of Oaktree Capital and author of several investment books, explains this dichotomy. First-level thinking operates on the surface, readily accepting the most apparent implications of a situation. It’s a linear process, drawing a straight line from cause to immediate effect. For instance, the announcement of an impending recession might prompt the immediate reaction: “Recession is coming, so sell all stocks.” This conclusion, while logical, is often widely shared and quickly priced in by the market. It represents the consensus view, the obvious interpretation that requires minimal effort or deep analysis. First-level thinking asks, “What is?” and delivers a straightforward, often reactive, answer.
But the world, and especially financial markets, rarely operate in such a straightforward manner. This is where the power of second-level thinking comes into play. It moves beyond the initial observation and probes deeper, asking “And then what?” It recognizes that actions and events trigger reactions, and those reactions come with their own consequences. A second-level thinker, upon hearing of strong company earnings, wouldn’t stop at the immediate positive implication. They would ask: “Is this already priced into the stock? What are expectations for future earnings? Could competition or changing consumer demand impact sustainability?” This deeper analysis accounts for sentiment, future probabilities, and whether the initial news is truly incremental or already discounted.
This brings me back to our discussion around the implications of the current regime change on American companies and their brand equity, not over the next few months, but over the next several years. When thinking about the strength of US businesses, it’s easy to focus on near-term metrics such as quarterly earnings, margin expansion, or the latest interest rate move. But as long-term investors who think like business owners, it’s important to occasionally step back and ask bigger, more fundamental questions. What makes American companies special in the eyes of the world? How might today’s trade and fiscal policies shape their future on the global stage? To answer these, we need to move past first-level analysis, the kind that simply reacts to headline risks, and apply the kind of second-level thinking Howard Marks champions. This means looking past the obvious and considering the deeper, lasting implications. This is especially relevant considering that many S&P 500 companies rely heavily on international markets for the majority of their revenues and profit.
For decades, American companies have enjoyed a form of soft power in the global arena. McDonald’s, Apple, Starbucks, Caterpillar — these aren’t just companies, they are cultural icons. For millions around the world (myself included!), they represent aspiration, freedom, and a taste of the American dream. That affinity has created powerful moats in the form of brand equity that Morningstar and other analysts consider one of the most durable competitive advantages a company can possess. This intangible value, including trust, familiarity, and reliability, allows US companies to command premium prices in foreign markets, expand distribution with ease, and retain customer loyalty across generations. It’s not just about marketing, it’s about identity.
Historically, these advantages were supported by a US foreign policy that emphasized free-market capitalism, open trade, and strong global alliances. In recent years, however, there has been a noticeable shift in approach. Tariffs have become a more commonly used tool in trade negotiations, and global partnerships are increasingly viewed through the lens of strategic competition. Under the Trump administration, a more assertive stance on trade and foreign policy marked a departure from previous norms, emphasizing national interest and bilateral agreements over multilateral cooperation. As this approach continues to influence the global conversation, it’s worth considering what long-term effects it might have on the global perception of American companies and the competitive landscape in which they operate.
Second-Level Thinking- Potential Implications for US Businesses:
Brand fragility abroad: If US foreign policy strains traditional alliances or if tariffs become a lasting fixture, foreign consumers may begin to view American brands with less admiration and more skepticism. Nationalism and pride in local brands could rise in response.
Supply chain nationalism: More countries are reassessing their reliance on the US, which could lead to regulation or tariffs that disadvantage American firms abroad.
Perceived unpredictability: Investors and international partners may begin to see the US as less predictable, especially if policy continues to shift significantly with each administration.
Cost structures and margins: Protectionist trade policy may provide short-term support to certain domestic industries but could ultimately raise input costs for globally integrated companies and compress margins.
To be clear, the US holds enormous structural advantages: world-class institutions, deep capital markets, rule of law, leading innovation, and the world’s reserve currency. But as investors in global businesses, we must look around the corner for potential headwinds and risks that even the best American companies could face abroad over the next decade and beyond.
May 2025 Market Commentary: America’s brand equity
by Yuval Ezer, CFA
Investors have experienced a volatile environment since President Trump returned to the political spotlight earlier this year. In previous letters, we’ve discussed his trade policies and the impact of tariffs on the stock market and the broader economy. Let’s now consider what this new policy regime could mean for the market, US companies, and the global economy.
For over a decade, investors enjoyed a tailwind of supportive fiscal and monetary policy: ultra-low rates, easy access to capital, rising financial asset prices, and relatively low volatility. That environment has shifted. Since 2021, interest rates have normalized to levels we haven’t seen in decades, and both fiscal spending and monetary policy have become more measured. The implication is simple but important. The path ahead, while still encouraging, may be bumpier and more uncertain, especially as global trade dynamics evolve and the US reconsiders aspects of its international economic engagement. The market swings we’ve seen this year could be a preview of how the next couple of years might unfold, particularly under a renewed Trump administration. But instead of reacting to short-term headlines, we at FV are focused on understanding the deeper implications of this regime change over the medium and long term.
In the realm of decision-making, particularly within the often-turbulent waters of investing, the distinction between first-level and second-level thinking proves to be a critical determinant of success. Howard Marks, co-founder of Oaktree Capital and author of several investment books, explains this dichotomy. First-level thinking operates on the surface, readily accepting the most apparent implications of a situation. It’s a linear process, drawing a straight line from cause to immediate effect. For instance, the announcement of an impending recession might prompt the immediate reaction: “Recession is coming, so sell all stocks.” This conclusion, while logical, is often widely shared and quickly priced in by the market. It represents the consensus view, the obvious interpretation that requires minimal effort or deep analysis. First-level thinking asks, “What is?” and delivers a straightforward, often reactive, answer.
But the world, and especially financial markets, rarely operate in such a straightforward manner. This is where the power of second-level thinking comes into play. It moves beyond the initial observation and probes deeper, asking “And then what?” It recognizes that actions and events trigger reactions, and those reactions come with their own consequences. A second-level thinker, upon hearing of strong company earnings, wouldn’t stop at the immediate positive implication. They would ask: “Is this already priced into the stock? What are expectations for future earnings? Could competition or changing consumer demand impact sustainability?” This deeper analysis accounts for sentiment, future probabilities, and whether the initial news is truly incremental or already discounted.
This brings me back to our discussion around the implications of the current regime change on American companies and their brand equity, not over the next few months, but over the next several years. When thinking about the strength of US businesses, it’s easy to focus on near-term metrics such as quarterly earnings, margin expansion, or the latest interest rate move. But as long-term investors who think like business owners, it’s important to occasionally step back and ask bigger, more fundamental questions. What makes American companies special in the eyes of the world? How might today’s trade and fiscal policies shape their future on the global stage? To answer these, we need to move past first-level analysis, the kind that simply reacts to headline risks, and apply the kind of second-level thinking Howard Marks champions. This means looking past the obvious and considering the deeper, lasting implications. This is especially relevant considering that many S&P 500 companies rely heavily on international markets for the majority of their revenues and profit.
For decades, American companies have enjoyed a form of soft power in the global arena. McDonald’s, Apple, Starbucks, Caterpillar — these aren’t just companies, they are cultural icons. For millions around the world (myself included!), they represent aspiration, freedom, and a taste of the American dream. That affinity has created powerful moats in the form of brand equity that Morningstar and other analysts consider one of the most durable competitive advantages a company can possess. This intangible value, including trust, familiarity, and reliability, allows US companies to command premium prices in foreign markets, expand distribution with ease, and retain customer loyalty across generations. It’s not just about marketing, it’s about identity.
Historically, these advantages were supported by a US foreign policy that emphasized free-market capitalism, open trade, and strong global alliances. In recent years, however, there has been a noticeable shift in approach. Tariffs have become a more commonly used tool in trade negotiations, and global partnerships are increasingly viewed through the lens of strategic competition. Under the Trump administration, a more assertive stance on trade and foreign policy marked a departure from previous norms, emphasizing national interest and bilateral agreements over multilateral cooperation. As this approach continues to influence the global conversation, it’s worth considering what long-term effects it might have on the global perception of American companies and the competitive landscape in which they operate.
Second-Level Thinking- Potential Implications for US Businesses:
To be clear, the US holds enormous structural advantages: world-class institutions, deep capital markets, rule of law, leading innovation, and the world’s reserve currency. But as investors in global businesses, we must look around the corner for potential headwinds and risks that even the best American companies could face abroad over the next decade and beyond.
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