Where Do the Markets Go from Here?

Well, that was an interesting couple of weeks.  We just witnessed a lifetime of movements within a month.  These include:

• The S&P 500 dropping 10% in 2 days.
• A one-day increase of 9.5% for the S&P 500, which is the third largest since World War II.
• A .50% increase in the rate of 10-year Treasuries, the biggest rise since 1987.

I believe the most surprising one of the above was the .50% increase in the longer yields.  Typically, when there is market volatility to the downside, we see a flight to safety, which means investors buying bonds.  Recall, when people buy bonds, the yield drops.

Is it Time to Buy the Dip?

The question I am getting a lot right now is, “is it time to buy the dip?”.  The answer to that question depends on how aggressive of an investor you are.  I don’t believe the downside is over and I still think stocks are a bit over-valued, thus, not a great buying opportunity yet.  However, if you are very aggressive and have time if you are wrong, then it can make sense.

My one warning though, is don’t buy a stock just because of the “buy the dip” strategy. One should buy a stock because the current price is lower than the real value, determined by each investor.  If a stock is over-valued by 100%, is it a real great buy just because it is down 15%?

As for what I think lies ahead of the market, as I said above, I don’t believe the downside is over.  Valuations are still relatively high, although not as high coming into the year, the chance for a recession has increased over 50%, the fed refuses to lower rates and has made it clear no rate cuts are in the foreseeable future, and spending on discretionary items has slowed significantly.  Not to be too depressing, consumer confidence has hit a low not seen since November 2022.  That index is a contrarian index, which is proven by the fact that the S&P 500 index has returned on average 19% after it hits a low (BNY Wealth).

The market doesn’t like uncertainty and these tariffs sure have added that to the current situation.  By this time, most of you probably have an opinion on tariffs.  I have no desire to address whether they are good or bad, I only want to discuss the impact on the markets.  Many fear it will increase inflation pressures.  Just know, there is no conclusive proof, which is different than opinion, that tariffs cause material inflation.  There are some studies that show a .10% to .30% one-time increase to the CPI (i.e. prices don’t continue to go up unless tariffs continue to go up).   Contrary to a lot of the noise out there, companies can’t just raise prices because they want to.  Supply versus demand equilibrium is still a major economic tenet of a capitalistic market.  From my perspective, the most concerning part about these tariffs is how it impacts the consumer’s mindset.

If the tariffs scare people because most of the news they hear is your costs are going way up, they might slow down on spending or front load major purchases.  We are a consumption centric economy.  Any slowdown in spending is bad for the market.

How Should We Invest Right Now?

I do not believe in trying to time the market by selling all or most of your equities and waiting for a “better time.”  What we can do is invest more in low volatility stocks and selling some more aggressive investments.  De-risk the portfolio until either valuation makes the market a screaming buy.  This is only with those positions outside of your core holdings.   I do not recommend one take a tax hit on positions they expect to hold long-term just to buy that investment again in a few months (S&P 500 index fund).  Wait it out, it will come back.

As for new money, again that just depends on how aggressive you are.  As I stated, and I apologize for being repetitive, I do not believe valuations are at a level that screams buy.  On the flip side, Trump might pause the tariffs again or announce new trade agreements with major countries.  Either of those could spur the market on, which is another reason to not go to significant cash and try to time the market.

Just know, that every single time the market has had a major correction, it has recovered.  The one thing I am 100% convinced of is we will be just fine long-term.  I believe in the U.S. economy long-term.  Try not to sweat the short-term.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful. Investing involves risk including loss of principal. No strategy assures success or protects against loss.