By Rick Schwerd | April 19, 2024
Our investment team remains committed to sharing updates and market insights to keep you informed. Please look for our next update on May 3.
Rough Start to Second Quarter
After steadily climbing for nearly six months without a pullback, markets hit some turbulence in April. The S&P 500 is down 5 percent this month but remains up 5 percent year-to-date. The Dow Jones Industrial Average has given up almost all its gains for the year, up only fractionally. The NASDAQ is down nearly 5 percent this month and is up 3.4 percent year-to-date.
A few factors have led to the market drop. Much of the recent economic data has been stronger than expected. This along with three straight months of higher-than-expected inflation data have contributed to higher interest rates and put expected Federal Reserve monetary easing on hold. Markets have spent much of the last six months anticipating Fed rate cuts, which typically benefits stock prices. In January, markets expected six quarter-point rate cuts over the course of the year. Now many are wondering if we will get any cuts by the end of the year.
Higher-for-longer interest rates have been the main cause for the sell-off, but higher commodity prices and the escalating hostilities in the Middle East have also contributed. Oil, gasoline, gold, silver, cocoa and coffee are all up more than 15 percent year-to-date, further fueling inflation concerns. Markets have largely looked past geopolitical issues during the last several years. However, with Iran directly attacking Israel for the first time over the weekend, concerns of greater escalation and the possibility of disruptions in the supply of Middle East oil are having an effect. Last night’s limited retaliation strike by Israel and Iran’s subsequent downplaying of the incident provides some hope that both sides are trying to de-escalate the situation at this time.
It is best to keep in mind that equity markets do not go up in a linear fashion. However, if you have an intermediate to long-term time horizon, equities have consistently outperformed cash, money markets and bonds by a significant amount over time. Three to five percent pullbacks in equity markets are fairly typical during the course of a year. That is not to say this current pullback could continue a while longer; short-term market moves remain difficult to predict. What we know is that the economy remains strong. We are near full employment, and earnings season – which has just begun – will likely be pretty good. We are not pollyannish on markets, but we also fight the urge to allow emotion to make us too negative following a couple of bad weeks.
Proposed Increases in Chinese Steel Tariffs
This week, the Biden administration proposed a tripling of tariffs on imported Chinese steel into the United States. The effects of this are likely limited as the amount of Chinese steel we currently import is limited. It could be written off as election-year posturing as both leading candidates have been promoting protections policies. However, it does re‐emphasize one of our macro trends that we continue to follow: the reshoring and near-shoring of U.S. supply chains.
This trend will have long-term effects on the overall economy, including labor markets, natural resources, energy markets and others, as well as having unknown geopolitical consequences. Over the next decade, this will produce winners and losers within the economy and be one of its driving forces.
As always, if you have any questions or concerns regarding markets or your financial planning needs, please reach out to us at (518) 415-4401.
About the Author: With almost three decades of financial industry experience, Rick serves as a Senior Investment Officer at Saratoga National Bank. He oversees individual and corporate retirement plans, personal trusts, investment management accounts, foundations and not-for-profit relationships. He is also co-portfolio manager of the proprietary North Country Large Cap Equity Fund.