By Tim Courtney, Chief Investment Officer
One of the things we have learned over the last two weeks is that markets are working. For several quarters in a row, markets moved higher and volatility moved lower. Stocks, especially the largest U.S. companies, marched higher regardless of inflation, interest rates, historic valuations and weakening consumer numbers.1 It seemed the market was on autopilot.
Today, we know the market is certainly reacting to news. Tariff turmoil caused market volatility to quadruple from its level at the start of the year.2 The high starting valuation of U.S. stocks hasn’t helped as many companies were priced for a smooth ride—a scenario we rarely get in this world.
As we noted a few weeks ago, correctly guessing how all of this will end is nearly impossible, as is finding a strategy for trading around the daily reactions. These times are the reason why having a long-term strategic asset allocation is so important. They are also the reason why markets produce real returns at all. While we typically capture returns in quieter times, we earn them in times like these.
Market prices are extremely noisy and are sending many signals, some of them contradictory. Based on some prices, the market is signaling that a recession has become more likely than it was a month ago.3 This outcome is uncertain, as was the market’s signal of a potential recession in 2022.
For most investors, long-term goals and strategies haven’t changed amid this news. Asset sellers are finding asset buyers at prices which allow the owner to have positive expected future returns. If you have any questions about your long-term strategy and asset allocation, please contact your Exencial advisor.
Sources
- Reuters (12/31/24) Markets in 2024: Wall Street’s High-Octane Rally Keeps Investors Captive to the US
- Bloomberg (4/3/25) VIX Jumps to Highest Since August as Tariffs Spur Stock Rout
- Reuters (4/5/25) Global Brokerages Raise Recession Odds
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