Has the Economic Environment Changed Permanently?

Last month, we kicked off Spring debunking the “Sell in May and go away” thesis. Keeping in the weathervane, let’s talk a bit about the difference between investing weather and investing climate.

I stumbled onto the idea while reading Jason Zweig’s Your Money & Your Brain on a flight to Cincinnati last month and it got me thinking. If New Englanders don’t ditch the best of their L.L. Bean fleeces and anoraks after a stint of warmer winter weather, and Texans don’t close pools after an errant snowstorm, what makes investors perceive certain events as changes to the market climate as a whole? 

Further, how can we know when the market climate is actually changing and it’s time to pack away the umbrellas in exchange for sun hats? Let’s dig in.

Weather v. Climate: Some Factors

Over the last five years, changes in administrations haven’t been the only events to spike volatility or introduce a remarkable change in price levels. Between the COVID-19 pandemic, the rampant inflation that followed, and a new era for interest rates, the market had plenty of investors shivering in the summer.

So when could it be time to change the wardrobe? I think we can flesh that out by answering a few questions: is it seasonal and precedented, is it coming from within the market, and how permanent might it be?

Seasonality/Cyclicality

Last month, we determined that selling in May could leave some serious gains on the table. We have seen that, historically, volatility and trading volume can be down in the summer months, but, around the start of the global pandemic, that trend was bucked.

The climate changed, and not just for the summer months, but broadly. This meant there was no avoiding an altogether higher level of volatility, so investors would likely need to buckle up and settle in for the long haul in order to match the market—even more to try to outperform it.

On the other side of that coin, it’s not unusual for, say, consumer discretionary companies to have a couple of quarters where results are more robust than in others due to the nature of their business. Additionally, some of these same companies might get bogged down in the woes of supply chain issues that affect their entire peer group. 

We consider these to be weather events. A change in climate here would be something like a reshuffling of the global trade order—and I’ve been informed I do not have a sufficient word count allowance to flesh that out here. 

Exogenous Shocks

Exogenous shocks—meaning they developed from factors outside of the financial markets— can create both “weather events” and changes in the investing climate, so context is key.

Figure 1: Corporate Finance Institute. "The Business Cycle in Economics." Accessed June 25, 2025.

Keeping with our example above, the seasonal consumption changes, and the cyclical ones that come with the economic cycle (fig.1), have often largely been priced into the market due to their predictable nature. A supply chain issue with a predictable or semi-predictable end (strikes and other labor negotiations) isn’t expected but might be easier to grasp or quantify in models. That’s weather.

But let’s be hyperbolic, just for fun, and say that the European Economic Area (EEA) decides to cease the free movement of goods, persons, services and capital. That’s when we’d be looking at a significant change in the investing climate that’s entirely unexpected, unpredictable, and unrelated to the internal goings on for any one industry.

Permanence 

This is perhaps the most tangible factor of those discussed here. Gasoline prices typically rise in the summer, and retailers can see relatively higher sales volumes in the fourth calendar quarter. 

What happens when the acts of shopping and transacting radically change, though? When Agentic Commerce sufficiently scales and your groceries, pantry staples, and your running shoes show up at your front door with minimal executive function on your part? 

That, my friends, is a change in climate. 

What Do I Do With Any Of This Right Now?

In today’s markets, there’s a confluence of little storms and potentially permanent changes in temperature. 

Interest rates have been on a higher-for-longer trajectory, global trade looks to us more turbulent and hostile than it has for generations, and war in several corners of the world can compound the consequences. These inputs necessitate a long term approach to active investing, one that allows us to hunker down with our highest convictions, unbothered by the weather of inconsequential earnings reports. 

We believe the best news for active investors is that a change in climate can be a significant opportunity for long-term outperformance, and that’s exactly how my team and I are approaching this situation. The ongoing search for and evaluation of companies that we believe out-scale and outperform their peer groups creates an inventory of positions to open when the time is right. This isn’t about market timing for short term capture but meeting secular change as close to its start line as we can reasonably get.