Quick Market Update

It can be difficult to know what to write about when the markets get crazy. I’ve gone through maybe a dozen variations on this simple post. I don’t want to bore you by endlessly repeating myself and, while there’s been lots of “news”, there haven’t been many major developments in the last few days to clarify a way forward for the economy and markets.

So how about a quick update on where we stand and any changes to the outlook.

Yesterday was another wild ride in the stock market. After opening lower by at least 2%, stocks surged several percentage points on apparently fake news about the Trump administration pausing tariff implementation. Social media and legacy media jumped on the “news” before the whole story unwound within maybe half an hour. Ultimately, the S&P 500 settled a bit and closed down about half a percent on the day and the NASDAQ actually closed up a smidgeon. The stock market’s “fear gauge”, the CBOE Volatility Index, hit 60 during the day, a level not seen since the Financial Crisis and during Covid. Talk about a jumpy market environment!

Still, the S&P 500 is down about 11% since the major tariff plan was announced last week and 13% or so this year. According to my research partners at Bespoke Investment Group the average loss around the world since “Liberation Day” has been 10%. Foreign markets have generally been doing better this year but many have caught up with our losses. Countries like Norway, China, and Italy are down 13% to 15% during the last few days, while others like France and India are down 5% to 6%.

Higher quality bonds, such as US Treasuries, are still positive this year although the primary intermediate term benchmark, the Bloomberg US Aggregate Bond Index, also swung around before closing down over a percent yesterday. And higher risk areas of the bond market have been getting hammered along with stocks.

As I type the US markets have opened higher by 3% or so. Apparently this is driven by a number of countries making noise about bargaining with the Trump Administration for lower tariffs. It’s also driven by short-term technical factors like every stock index being extremely oversold. Whatever the cause, it’s great to break a losing streak and maybe (hopefully!) create some positive momentum.

That said, only time will tell how all this plays out. Maybe stocks correct back quickly but I doubt it – the overall outlook is too uncertain. Along these lines I was on a call with a market analyst yesterday afternoon and here are some notes:

Tariffs tend to be a regressive tax, so the average consumer was already showing declining sentiment and now they’ll be facing higher prices from tariffs, assuming the tariff plan is implemented.

Uncertainty for business leaders is incredibly high and it is reasonable to expect that businesses and consumers pullback on spending in the near-term.

This is true both here and abroad, with recession risk rising substantially in much of the western world. A recession here at home is probable, perhaps this quarter. It could be short and shallow but length and severity obviously depend on how the tariff situation plays out.

The Fed is currently expected to lower rates this summer by half a percent, maybe more, presumably to help stimulate a slowing economy.

I agree with pretty much everything the analyst said because his matter-of-fact and gloomy assumptions are reasonable.

Tradition holds that during uncertain times financial planners are supposed to offer balanced and reasonable comments about staying the course, we’re in this for the long haul, and so forth. While these concepts sometimes seem like platitudes, processes like diversification and rebalancing do work if given enough time and can serve as a touchstone in this era of rapid-fire news and information.

If I’m responsible for managing your portfolio you’ve heard from me in recent days about rebalancing. That’s an important and counterintuitive process where we sell what’s been doing well to buy more of good quality investments that have been doing poorly. I have percentage thresholds around investments to help monitor this within a client’s portfolio. Many of these haven’t been triggered yet but I’m watching daily and will rebalance as needed. This is part of what I mean when I talk about sticking to our plan. Let me know about near-term cash needs because I can often blend generating cash into the rebalancing process.

If you’re managing your own portfolio, try hard to analyze objectively. If you own good quality investments you can tweak the balance but be extremely careful about making major changes based on headlines that can change with a single tweet. Markets can move very fast and we were reminded of this yesterday. Trying to “trade” this kind of market environment is a fool’s errand.

Okay, that’s enough rambling for today. Have a good week!

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