(1) The stock market’s tariff-driven volatility has now started to incorporate some Federal Reserve-driven volatility, as it remains clear that the Fed is not coming to the rescue by cutting rates at this time, and that’s making investors nervous. We caution investors to be careful what they wish for when it comes to rate cuts. The Fed cutting rates would be a signal that they are worried about the economy. The stock market rose throughout 2023 and 2024 during times of rising and elevated rates.
(2) We urge investors to tune out the noise about President Trump’s pressure on Powell. While the administration is entitled to their opinion on interest rates, it’s highly likely that Powell will finish the roughly one year remaining on his term.
(3) The stock market remains volatile as investors still have the lingering threat of tariffs in the background. Even though it appears as though trade negotiations are taking place, the fluidity of these negotiations is what’s continuing to cause wider than expected market swings.
(4) Our message to investors is to stay the course, use pullbacks as opportunities, and don’t try to time the bottom. While the past few weeks of volatility is uncomfortable, stocks are still trading at levels seen roughly one year ago, when sentiment was much better than it was now.
(5) The yield on the 10-year Treasury remains stubborn in the 4.3% area, and it’s likely to stay in this area for some time. While some investors had been expecting an even lower 10-year Treasury yield given the stock market’s recent volatility, it’s clear the bond market is not pricing in an economic calamity. The 10-year Treasury remains fairly priced in our view even with the tariff-driven volatility, and we would remind investors that yields are actually down slightly year-to-date.
(6) Earnings reports continue to remain key to this market, and so far, companies are holding up well in this state of uncertainty. That is a sign that companies should be able to adapt to the next few months of tariff-driven uncertainty.
