Tariffs and Treasuries Moved Markets Last Week

More tariff news and a weaker than expected bond auction affected markets last week.

The White House announced higher tariffs on the EU last week due to "difficult" negotiations. However, over the weekend, the administration announced a delay until July 9th on those tariffs after discussions with EU representatives. Markets clearly have not become accustomed to the manner in which this administration negotiates, meaning every headline will likely move markets until trade deals are finalized. In addition, a weaker than expected auction of 20-year Treasury Bonds caused a stir, which has become the norm over the past few years. Yields on Treasuries have caused the narrative on markets to change more than 7 times since the beginning of 2023. However, the 20-year auction was not very large and that maturity is not as stable in terms of demand as the 10-year or 30-year maturities.

Investors are responding to every headline and alert these days, which is pleasing to the financial media, no doubt.

If investors would instead focus on long-term results, returns and emotions would be well served. The rolling returns on the S&P 500 Index have lower negative results over 10-years (-5.4%) versus 1-year (-67.8%). Median returns do not dramatically drop over the long-term (+8.6% for 10 years) versus the short-term (+10.7% for 1 year). Sentiment is also a bit skewed versus reality. Consumers' response to surveys reveal worry over economic conditions, yet Retail Sales are up over the past 12 months. Sentiment on inflation is a bit out of whack, as expectations are for inflation to double in the next 12 months, when the Fed is showing little movement in May inflation data. Consumer surveys may be unreliable in the short-term as long as data continue to show stable spending and growing earnings.

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