Since our last blog post on March 4th we have seen the S&P 500 continue to trend higher gaining nearly 5%. While the move hasn’t been exactly straight upward, the levels of volatility (indicated by market declines) have been remarkably short lived; with the largest pullback in the last 2 months being a whopping 4-5 days amounting to less than a 2% retreat. In other words, the market has walked 5 steps forward and half a step back instead of the usual 3 steps forward 2 steps back sort of progression.
Until this past Sunday markets had calmed on the trade front, not being as easily effected by news headlines as the general sentiment is that the trade deal is near. However; Sunday evening President Trump tweeted out a new development of additional tariffs set to be implemented May 10th. The tweet flew out citing that China was taking ‘too long’ to negotiate a proper trade deal with the US. US market futures were thrown into flux heading downward for today’s opening bell. Before this weekend’s development, markets had turned their attention towards the Federal Reserve’s monetary policy outlook and the 2020 election. Talking heads are calling the October correction the ‘Fed lead correction’ in reference to the rising interest rate environment Fed Chair Jerome Powell was employing. While the Fed may have played a role in the largest correction since 2008, it has also lead the markets out of it with a shift in policy occurring the first week of the new year. Since then, Chairman Powell has noted that the strong economy and inflationary targets warrant several interest rate pauses.
Essentially, we have seen a dramatic increase in stock prices since the decline in the Fall of 2018 without a significant gain in the bottom line earnings that normally drive such an increase. Since the market experienced heightened volatility at these levels last time, perhaps this time will ‘be no different’.
Regardless of the Fed’s policy and market volatility (or lack their of) we are finding that select companies are performing well. Dividend heightened investments seem wise given the search party for market growth is still out and shared profits are relatively more stable than betting on higher stock prices from here.