Markets Ease On Tariff News

More news about potential pauses in tariffs, along with highly-leveraged institutional funds de-risking, seems to have calmed markets for the moment.

Despite the volatile week with markets suffering intra-day declines of up to 3% and intra-day advances of up to 9%, the S&P 500 Index had it's best week (+5.7%) since November, 2023. In fact, Wednesday's return of +9.5% is the 3rd best single day for the S&P 500 going back to 1990. This is why timing markets is so difficult, especially given the current news cycle and uncertainty. Times like this are when sound financial plans and investment strategies are so important to help keep investors from doing more harm to their portfolios than good.

A data-driven approach to investing is typically better than responding to a headline.

The U.S. Recession Probabilities metric published by the St. Louis Federal Reserve is not showing much movement yet, despite the market volatility. Fears over stagflation, for the time being, appear to be overblown. Last week, the numbers for both CPI (Consumer Price Index) and PPI (Producer Price Index) came in lower than expected and dropped on a year-over-year basis. Initial Jobless Claims were flat, while Continuing Claims declined. Neither metric is anywhere close to the elevated levels typically seen prior to recessions. In order to have stagflation, you need slow growth, high unemployment, and rising inflation. At least two of those conditions are not present.

Meanwhile, instead of explaining to investors what has been going on behind the scenes, news media have been busy stoking fear.

The "Basis Trade" - hedge funds using leverage to gain a performance advantage and selling assets due to lower collateral levels - has been behind a large portion of the volatility. Much of that seems to have run its course. Moving forward, if we look at days like Tuesday & Wednesday, when the S&P closed below it's 200-day low, then 97% of the stocks in the index move higher the following day, we see good results long-term. Tuesday & Wednesday's results have occurred 9 other times since 2008. In each case, the returns 9 months and 12 months later were positive, with the average return being 25.3% and 29.9%, respectively. Investors should stick to their investing strategy based on their stated goals and turn off the media.

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Disclosures

The information contained herein is for informational purposes only and is developed from sources believed to be providing accurate information. The opinions expressed are those of the author, are for general information, and should not be considered a solicitation for the purchase or sale of any security. The decision to review or consider the purchase or sell of any security should not be undertaken without consideration of your personal financial information, investment objectives and risk tolerance with your financial professional.

Forecasts or forward-looking statements are based on assumptions, may not materialize, and are subject to revision without notice.

Any market indexes discussed are unmanaged, and generally, considered representative of their respective markets. Index performance is not indicative of the past performance of a particular investment. Indexes do not incur management fees, costs, and expenses. Individuals cannot directly invest in unmanaged indexes. The S&P 500 Composite Index is an unmanaged group of securities that are considered to be representative of the stock market in general.

Past Performance does not guarantee future results.