Hope you are all doing well. Happy Mother’s Day! Stocks traded in a narrow range most of the week as the major U.S. indexes closed down fractionally overall, marking a pause in the wake of recently elevated volatility. Despite its gains in recent weeks, the S&P 500 remained nearly 8% below its record high reached in mid-February. In honor of Mother’s Day, I have broken down this week’s update using quotes from TV mom, Marie Barone from Everybody Loves Raymond.
“Well pardon me for saying…..but what the hell is that supposed to mean?!” – Marie Barone (Doris Roberts)
We got a trade deal…well sort of. The deal is not a comprehensive free trade agreement but rather a framework for future negotiations aimed at reaching such an agreement. While I am optimistic that more deals will follow. I am not super excited by this announcement. It seems like the administration wanted to announce something positive so they put this out there before it is even finished. The U.K. is one of the few countries we have a trade surplus with so it tells us basically the best case scenario countries can expect to negotiate. Here’s the important takeaways from the announcement. If you want to make a deal you need to promise to buy goods from our farmers. The US will gain increased access to the UK market for goods like ethanol, beef, and agricultural products, with a potential $5 billion opportunity for new exports. The other key takeaway is that we got a sense of the non monetary asks the U.S. is looking for in a deal. Pharmaceutical supply chain, the agreement aims to create a secure supply chain for pharmaceutical products, with further details to be finalized in the coming week. Defense and aerospace production, the deal also includes preferential access for the US to high-quality UK aerospace components. I would like to see pen to paper on an actual deal with a trading partner where we have a trade deficit. That I think could cause a snowball effect once countries see what the U.S. is expecting from nations in that position. I am still optimistic that trade deals will get done. I am however concerned that the pause in market volatility won’t last if the administration doesn’t start getting more deals across the finish line over the next month.
“Are you cooking something? Because… there’s an aroma.” – Marie Barone (Doris Roberts)
Is the U.S. Federal Reserve planning on feeding the market or not? Fed Chair Jerome Powell said that it’s “not at all clear” what the central bank should do next, keeping interest rates unchanged for its third meeting in a row. The extension of its wait-and-see policy approach drew the ire of the President. The market digested the news OK but it is still expecting 4 interest cuts this year. The Fed issued a statement noting that “the risks of higher unemployment and higher inflation have risen” in order to justify their wait and see approach. I agree with the Fed that there is too much uncertainty still. What happens next with trade policy is still very much up in the air. This makes it almost impossible to know with any type of certainty which way the inflation, the economy, unemployment or the stock market for that matter will head. We should have more clarity in the next month or two so until then the best thing for the Fed to do is nothing. Coincidentally that is also the best thing for you to do with your stock investments, nothing. Just stay the course. The one caveat to that is if you have money in risk assets like stocks or bitcoin that you are certain you will require for expenses before the end of this year then now is a decent time to move only the money you will need to something safe.
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