The market is recovering, but don’t confuse that with guaranteed gains.
KEY TAKEAWAYS
MY HOT TAKES
Consume wisely. The market has a lot of great features, and spoon-feeding easy returns is not one of them. It might be difficult to comprehend given the returns we have had the past few years, but no, the market is not some benevolent divine force that will allow you to just print money when required. I know that you know this because I just reminded you of how painful 2022 was, and while we are here, let’s just go back to early 2020, and December 2018 because, why not?
Ok, ready? I am going to blow your mind right now. How was your 2024? I should think it was quite good. If you invested in the S&P 500 blindly through an ETF, you would have earned 23.3%. That’s gotta make you happy considering that the S&P 500 earned some 10% on average per year going way back. But was it an easy year?
You probably think it was, but it wasn’t. Let me remind you that there were no fewer than six “uncomfortable” drawdowns throughout the year with the largest being the 8.5% one last summer. There you go, now you remember. There was some pain that year.
That was then. This year was supposed to be THE year, thanks to President Trump’s purported pro-business interest. But something went wrong a few days after Trump was inaugurated. Markets got tripped up. That’s right, we ended up with a max drawdown of almost 19%. Now, I am sure that I don’t have to remind you of that pain; you are likely still feeling it right now. But something changed early last month. The President, after ratcheting up Chinese tariffs to 145%, decided that it was time to start negotiating. Oh, and both Treasury securities and the Dollar faltered, which didn’t make things any easier.
With the President’s pivot, a new era of guarded optimism emerged, and stocks bounced, though not in a straight line. Regardless, we are now some 13.6% off the lows of 2025. Most of the gains are attributed to delays on already announced tariffs. Last week, markets were rewarded with what looked to be a trade deal with the UK. That is positive news… if you were in the market for a new Rolls Royce! Farmers too will benefit as levies on some US exports were lifted or removed.
This past weekend, Treasury Secretary Scott Besent met his Chinese counterpart, and they agreed to suspend tariffs between countries, leaving them at 10%. Now, as you might expect, markets are quite happy with the swift and aggressive maneuver. Stock futures are pointing to a sizable gain at the open. The VIX volatility index fell and now sits at around 20 (still elevated, but off its recent high). Treasury Notes yields are higher as capital flows out of Treasuries and into equities.
So, what do you do when the market opens this morning? Do you a) sit tight because you are a long-term investor and you LISTENED TO MARK, b) sell–fade the rally, or c) buy buy buy. Tough question, isn’t it? Don’t worry, I will help you with the answer.
The best answer is one that I technically didn’t give you. All the above. That’s right. Can I remind you that we are in the final leg of earnings season? We just learned about as much as we could ever expect from corporate management regarding their current results and future prospects. Stocks which were forbiddingly expensive at the start of the year are still quite a bit cheaper today. Some companies with high expectations have faltered. Still others surprised investors with better-than-expected results, Most are still concerned over tariffs. What to do?
Well, now is a good time to consider trimming positions in those stocks that fell short. Doing nothing with those stocks that you remained faithful to is a no brainer. Buying new stocks or adding to positions now that we heard that tariffs are on hold, may be a good option now, but this is where things get challenging.
Don’t fall prey to the FOMO trade and blindly buy everything in sight. Please, be thoughtful and remember that a final trade deal with China may be closer, but it is far from complete. Additionally, we have yet to witness the economic costs of the tariffs that have been in place or even declined due to consumer anxiety. They will come, trust me, and it can get worse before it gets better. Additionally, regardless of all this recent trade to-do, US companies are expected to have weaker Q2 EPS growth. Finally, as I am sure that you are well aware, things can still change on a dime… or a tweet.
The message I want to leave you with is to make sure that you continue to be diligent and thoughtful about your trades. This weekend’s development is a small clearing in the middle of a forest. The week ahead will feature important economic numbers about inflation, trade, sentiment, and inflation expectations. We will also learn a great deal about the state of retail as retail heavyweights announce earnings, and the US Census Bureau will release its monthly Retail Sales figure. Please pay attention to them.
FRIDAY’S MARKETS
Stocks started the session with high hopes about weekend meetings between the US and China. It didn’t take long for those hopes to be dashed by the President, who threw water on hopes of lower tariffs causing stocks to pair early gains and close in the red. Longer maturity yields have been quietly climbing causing the Treasury yield curve to steepen and mortgage rates to inch up.
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