Thoughts in Volatile Markets
Well, the markets have undergone a bit more of a real correction of late. I was asked if things could fall a lot more and my response was “absolutely”. That is not a prediction, but a “note to self” that we have had terrific markets for quite a while now. Led by the handful of tech stocks that are, not surprisingly, being hit the most, the markets are in what I would so far call a healthy correction. We have spoken for quite a while about the markets being stretched – going further and further upward (my rubber band example) and while we look for a reason and can currently fill in the blank with tariffs and economic unknowns, the fact of the matter is that markets undergo “real corrections” of 10-15% downside with some regularity, over the last 50 years, and it has been a while. Whatever reason we can blame, we were due/overdue for some negative movement, and this provides wonderfully more reasonable valuations for investing rather than reasons for panic or concern.
We could see market falloff be done in a day or it could last a while longer, but this is good for long term markets and, after being tired of chasing things upward, I am glad to see valuations look more appealing for investing.
A litany of headlines has churned U.S. markets of recent days. In an otherwise strong US economy, here is a quick rundown of the ongoing tensions:
- The Trump administration’s threat to enact broad-based tariffs on goods imported from Canada, Mexico and the European Union has created uncertainty for producers. The effect on the market may be muted thus far by investors’ bias toward seeing the threats as primarily a negotiating tactic.
- Federal Reserve policymakers remained in “wait and see” mode following mixed January inflation reports and a number of weak economic growth reports. Until there is more clarity, this combination of factors will likely stay the hand of the Federal Open Market Committee (FOMC) from lowering interest rates.
- The release of an AI model from China at the end of January called into question the U.S.’s AI dominance – and AI-stock valuations – as well as expectations for related capital expenditures.
- Congressional leaders and the White House are eager to pass a significant budget, tax and debt limit package, but with their narrow House majority, Republicans may find achieving consensus difficult, increasing the risk of a government shutdown.
The S&P 500, which tracks large U.S. companies, finished February down 1.42% while the Russell 2000 was down 5.45%. Both have started March off by sending us into negative territory for 2025.
The relatively new administration spent its first full month vigorously pursuing its policy ideas and setting an agenda, backed by a friendly, if narrowly so, Congress. The strength of the U.S. economy remains, but time will tell how it holds up. Remember that the markets have experienced very little volatility going back 2+ years. The market is fully influenced by inflation, interest rates and policy uncertainty – and we have unknowns in all 3 areas plus ever-present geopolitical uncertainty in several places around the world.
Hang in there with some volatility and even some negativity. We continue to watch things closely – as always. Primarily to look for opportunity.
Key
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