By: Matt Garrott

The S&P 500 was down slightly in April at -0.76%.  Bonds rose 0.39%.  If you haven’t been paying attention to the news, congratulations, it was a quiet month.  Don’t read the rest of this commentary.

To borrow a zombie apocalypse movie trope, if you’re reading this, it’s already too late.  Today’s hyperactive news cycle means that anything written in this month’s commentary is outdated before it even hits your inbox.  April was nearly flat for stocks, but the very public negotiation of trade policy spurred rapid market shifts.  The S&P 500 dropped almost 11% to kick off the month.  Since then, it’s rebounded by almost 12%.

Coming into the year, the risk staring everyone in the face (for the last two years) was concentration risk in the S&P 500, but the market was still up 20%+ two years in a row.  My favorite economist, Brian Wesbury of First Trust, was calling for a pullback.  The surprise is that the catalyst for the recent drawdown was political, not fundamental.  Goldman’s Global Head of Market Strategy, John Tousley, says US exceptionalism is not dead, domestic equities just didn’t deserve such a huge premium and while at the same time international stocks didn’t deserve such a huge discount.  A repricing is going on now.

I wrote up multiple drafts of this commentary with thoughts on government policy shifts and how it’s only the first 100 days of this administration, but speculating on end-game policy and the path the government will take on the way is an exercise in futility.  The only constant so far has been change.  I’ll focus on markets and try to stay in my lane here.

The best macroeconomic take I’ve seen is from Goldman Sachs saying that if a recession is in the cards, it won’t be a structural recession, but a policy-induced, self-inflicted recession.  They expect it to be an uncertainty recession and not deep.  They see policy makers as having levers to pull for recovery that are unavailable during most recessions.

There are interesting data points in play.  It’s not clear what they mean for the future, but I expect some will seem obvious in hindsight.

  • Credit spreads are much tighter than in a normal recession (600 bps rather than 1000-1500).
  • There is a dislocation in soft data vs hard data – unemployment holding steady vs confidence plummeting.
  • The volatility of volatility is very high meaning it’s especially hard to time the markets. Goldman expects a V shaped recovery but without enough time to deploy at the bottom, so their suggestion is to stay invested as the market is likely to turn on a policy decision rather than fundamental strength.
  • General weirdness – MSCI China is up 9.44% YTD, but China A shares are down 3.23%. Someone is investing in China, but it isn’t the Chinese.
  • Municipal bond markets have been muted due to supply/demand imbalances that are expected to normalize through the rest of the year.

A financial plan isn’t a static one-time event.  It’s a plan of action.  There are things to do in this market environment, but chances are you’ve already done them.  Take advantage of the volatility.  Make it work for you by rebalancing.  You don’t have to time the exact top or bottom to reap the rewards.  In fact, we discourage timing and instead suggest a focus on making the rebalancing decision in the context of the portfolio as a whole.

No matter what’s going on in markets or politics, there are always parties that say the end is nigh.  In the wake of Lehman bankruptcy during the Global Financial Crisis, Howard Marks collected the following thoughts:

“There was nothing anyone could say they “knew,” and that included me. I was limited to gaming out my conclusions, which were as follows:

  • we can’t confidently predict the end of the world,
  • we’d have no idea what to do if we knew the world would end,
  • the things we’d do to gird for the end of the world would be disastrous if it didn’t end, and
  • most of the time the world doesn’t end.”

Market Commentary Disclosures

Fairway Wealth Management LLC (“Fairway”) is an SEC Registered Investment Adviser.  Registration does not imply an endorsement of the firm by securities regulators nor does it indicate that the adviser has attained a particular level of skill or ability.

This post represents the opinions of Fairway as of the date indicated and may contain forward-looking statements, predictions and forecasts. Forward-looking statements necessarily involve risks and uncertainties, and undue reliance should not be placed on them. There can be no assurance that forward-looking statements will prove to be accurate, and actual results and future events could differ materially from those anticipated in such statements.  Past performance is no guarantee of future results. Market conditions can vary widely over time and can result in a loss of portfolio value.

This post is prepared using third-party sources. Fairway considers these sources to be reliable; however, it cannot guarantee the accuracy or completeness of the information received.  This information is educational and general in nature and is not intended to be, nor should it be construed as specific investment, tax, or legal advice. Charts are provided for the illustrative purpose of general market commentary. No client or prospective client should assume the above information serves as the receipt of, or substitute for, personalized individual advice.