Embrace the Uncertainty
By John Stoltzfus,
Chief Investment Strategist
The First Days Are the Hardest Ones
We quote the Grateful Dead as the 100-day mark approaches for the Trump administration
In a holiday-abridged week, stocks moved lower stateside through last Thursday as the S&P 500, the Dow Industrials and the NASDAQ Composite respectively shed 1.13%, 0.9% and 1.2%. The S&P 400 (mid-caps) and the Russell 2000 (small caps) fared slightly worse—off 1.5% and 1.42%, respectively, through last Thursday.
Internationally, equity markets fared better as MSCI EAFE (developed markets ex-US and Canada) and MSCI Emerging Markets traded near flat with only a slightly negative bias, off 0.14% and 0.12%, respectively. MSCI Frontier markets, on the other hand, shed 0.7% on the week.
Bonds stateside rallied further as yields on the two-, ten- and thirty-year Treasuries moved lower as bond prices rose with their respective yields falling to 2.23%, 1.21% and 2.9%.
A mix of heightened geopolitical risk tied to North Korea, Syria and Afghanistan, mixed with related meetings among officials of the US, China and Russia, increased concern among investors as they prepared to take holiday on the weekend. As a result, risk assets were pared and safe-haven assets were added to by some investors.
A spate of modestly weaker economic data that crossed the transom last week caused some stateside commentators to ponder if the economy were slowing enough to cut into the current rate of expansion and cause the Fed to ease up on its process of interest rate normalization. Concerns about the possibility of the Fed reducing its holdings of fixed income securities held on its balance sheet at some point in the not too distant future added to an air of uncertainty in the markets last week.
Better than expected results from a number of financial institutions (including JP Morgan and Citigroup) when they reported Q1 earnings last week did little to stave off the appeal of “risk off” behavior among investors. The S&P 500 Financials sector slipped 2.65% on the week.
As investors return today from the three-day weekend, their view will likely remain focused on quarterly earnings, stateside and international economic news with an eye toward political developments stateside as well as in the geopolitical realm.
The release on Wednesday of the Fed’s Beige Book detailing economic conditions in the 12 Regions around the country could provide some relief to concerns held by some investors about prospects for economic growth ahead.
From our perspective on the Radar Screen, markets may move sideways near term as issues tied to funding government operations beyond the end of April raise concerns. In addition, the process of addressing agenda items belonging to both sides of the aisle may continue to act as speed bumps ahead of some type of resolution to the current level of gridlock.
With earnings season to begin gathering pace via the number of companies reporting this week, positive earnings surprises could push last week’s worries aside on a day-to-day basis.
We remain constructive on the improving economic landscape stateside and abroad. We believe that the economic expansion stateside as well a global economic recovery in Europe and Asia will continue to provide support for equity markets and provide a platform for further upside ahead.
In reading much of the somewhat negative political, economic and market commentary that has crossed the transom of late, we are reminded of the great American author Mark Twain who is said to have once remarked, “…..reports of my death have been greatly exaggerated”.
We would add that our current market mantra is “a detour is not the end of a journey.” It has served us well during past pauses of the current bull market as it has climbed a wall of worry.
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