The Waiting Game

Markets have risen more than 34% off the April lows as breadth has continued to improve. But now, investors play the waiting game - when will the Fed begin to cut

interest rates and when will trade deals get announced. This week's musings are inspired by the 1987 surprise hit, "Wait" by White Lion. Here’s some trivia about the song:

• While it was released in 1987, the song didn't reach the charts until February of 1988, due in no small part to the popularity of the video on MTV (something younger generations haven't experienced). It reached #8 on the Billboard charts and was the 2nd most successful song from the album "Pride" - helping propel that album to more than 2 million in copies sold.

• The song's formation came about when lead guitarist Vito Bratta played the intro to lead singer Mike Tramp. From there Tramp says, "I just sang 'Wait,' there was really no out of that song."

• As this song was the first hit for the band, Bratta's impressive solo during the song drew comparisons to Eddie Van Halen and Tramp's glamour look helped people associate the band to Bon Jovi.

• The band had some continued success with their follow-up album "Big Game," but they disbanded shortly after their fourth album. Bratta stepped away from music after injuring his wrist and was no longer able to play at a high level. Tramp is attempting to bring the band back with new members as re-recorded White Lion classics were featured in a 2023 album "Songs of White Lion," which met with limited commercial success.

"Wait - just a moment before our love will die

'Cause I - must know the reason why we say goodbye

Wait - just a moment and tell me why

Cause I - can show you lovin' that you won't deny

So if you go away - I know that I will follow

'Cause there's a place inside my heart that tells me

Hold out, hold out, hold out"

Here's what we've seen so far this week..

Powell Tells Investors To Wait. The Fed continues to play the waiting game when it comes to the Fed Funds Rate. While this week's announcement that rates would

remain unchanged was no shocker, the reasoning behind the decision left investors' scratching their proverbial heads. In fact, at his press conference on Wednesday, Fed Chairman Powell used the word "wait" or "waiting" 22 times. The justification for not cutting interest rates were given in the FOMC's latest statement following their meeting Wednesday as "risks of higher unemployment and higher inflation have risen." This is curious as the Fed's published data reveal a different story. For the better part of a year, the Unemployment rate has been range-bound between 4% and 4.2%. Inflation, as measured by both CPI & PCE are below historical averages.

The only other change in the FOMC's statement Wednesday was noting "swings in net exports have affected the data." In fact, Powell noted the during his press conference following the Fed's decision that the "scale and scope of tariffs" were the reasons for the Fed's concerns regarding inflation and unemployment risks. If that's the case, why wouldn't the Fed and the White House be discussing current fiscal and executive policies? The answer to that lies in the relationship of two men - Trump and Powell. When asked on Wednesday why he hasn't asked for a meeting with President Trump, Powell stated, "I've never asked for a meeting with any president, and I never will." While I understand the need for Powell to protect the independence of the Fed, duty demands that both the White House and the Fed remain in communication, while putting aside personal egos and biases. If the Fed were so concerned about tariffs, one would think that at least one rate cut would help alleviate any adverse affects of tariffs.

Meanwhile, the bond market is suggesting the Fed is making a policy mistake. Bond buyers in the middle of the curve clearly think the Fed should or will cut rates. The yield on 1yr Treasuries to 7yr Treasuries is below the yield on 3-month T-bills. Vice Chairman at Goldman Sachs, Rob Kaplan, sees a shift in Fed behavior and believes the Fed will continue to wait on certain "structural drivers" to play out. In our view, the Fed is now in reactive mode versus proactive mode. This could lead to a policy mistake by the central bank. It's worth noting that other central banks - England, Europe, China, & Switzerland - are actively cutting rates.

White House Waiting On Trade Deals? While many trade deals have been rumored to be in the works behind the scenes, only one trade deal has been announced so far and

the market is getting antsy for more deal announcements. Markets seemed to like the announced trade deal between the U.S. and the U.K. The highlights of the deal are a 10% tariff on U.K. goods coming into the U.S., while the U.K. lowers tariffs on U.S. goods from 5.1% to 1.8% and grants greater access to U.S. goods by U.K. consumers. Treasury Secretary Bessent has mentioned that there are deals in the works with at least 17 of the U.S.'s largest trade partners. Despite the fact that tariff revenue in 2025 is at 8-year highs, what the market wants to know is when a trade deal will be announced with China. The market will welcome announced trade deals with other partners and a scale down in tough tariff talk from the White House, but sustained gains in equities will be tied directly to a China trade deal.

Trade progress has definitely led to a reduction in risk in the market. Since peaking on on April 7th at 46.9, the VIX has dropped by more than 50% and is nearing the psychological low of 19.5, which is the long-term historical average of the VIX Index. This would be a strong signal that the worst is over in equities and the markets should trade with less volatility moving forward.

Finally, we are nearing the middle of May and the infamous investing moniker "Sell in May and Go Away" will certainly be bantered on nearly every financial medial. However, as we mentioned a couple of weeks ago, the Zweig Breadth Thrust (ZBT) has been triggered which could dispel the often-quoted moniker. When the ZBT triggers between Nov and April 30th, the May through October gains are 4 times greater than without a ZBT trigger. It might serve investors to stay invested than to wait on trade deals to be announced.

Wait - Just A Moment...

_______________________________________________________________________________________

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.