Hope you are all doing well. After posting gains on Monday and Tuesday, the major U.S. stock indexes turned negative the next three days to finish with overall weekly declines ranging from around 1% to nearly 3%. For the S&P 500, it was the fifth negative result in six weeks. Many of you are nervous and want to know when this drop will end. I don’t have a crystal ball but if I had to make an educated guess I believe the market sell off will capitulate soon. Capitulation events aren’t fun, they are very scary drops but the bounce that follows is high and fast. I feel we will start to exit this correction and head back higher this coming week. The reciprocal tariffs go into effect on Wednesday that will remove a large uncertainty, the market will digest the new normal and start to rebound. I find at times of stress rather than giving you some motivational garbage it is better to add a little levity. So I have broken down this week’s update using de-motivational quotes from despair.com.
DESPAIR – It’s always darkest just before it goes pitch black.
When we feel anxiety it is natural to start to feel that things will never improve but they always do. Stocks fell on Friday after a monthly gauge of U.S. consumer sentiment recorded the lowest reading since November 2022 (market bottom). The University of Michigan’s survey found that respondents have increasingly come to expect inflation to worsen. Moreover, two-thirds of respondents expect unemployment to rise—the highest proportion since 2009 (market bottom). That number signals to me a bottom is coming. Consumers are usually most pessimistic right before things actually start to improve.
LOSING – Failure is the greatest teacher, and we’re learning so much just by watching you.
The market continues to watch inflation and this week’s numbers were disappointing. Inflation moved further above the U.S. Federal Reserve’s 2.0% long-term target. The Personal Consumption Expenditures Index came out on Friday. Core PCE inflation excluding food and energy prices rose at an annual rate of 2.8% in February. That was above economists’ consensus forecast and above the previous month’s figure. The market overreacts to negative inflation numbers. A 2.8% inflation level is not terrible. Inflation is not out of control like it was two years ago, if anything the tick higher in inflation could be viewed as a positive in that it makes the Fed more likely to cut rates.
SKEPTICISM – Historians can’t even agree on yesterday’s news, so forgive me if I doubt their account of things that happened millennia ago.
Tariffs are talked about in the media as if they are always bad. They aren’t. This coming week will again put global trade tensions in focus. President Trump recently said that he expects to announce plans on Wednesday for the United States to impose reciprocal tariffs on key trading partners. The market has been volatile because we can’t garner from the President the scope of any such tariff increases. The scope of the tariffs will likely hinge on trade reports that are due to the president on Tuesday from his secretaries of commerce and treasury. I have a lot of confidence in both the Secretary of the Treasury and the Secretary of Commerce. While nobody is able to keep the President from saying things that impact markets, I believe Sec. Bessent and Sec. Lutnick will serve as effective guardrails in keeping the administration from taking actions that are truly detrimental to our economy.
If you are feeling nervous or it has been a while since we last spoke then please use my calendar link below and schedule a phone or zoom appointment. The calendar link allows you to schedule a call as early as the next day. I opened up additional hours and have been trying to speak to as many of you as possible.
