Meeks’s Musings: Have We Seen the Market’s Bottom?
Probably not. The market hates nothing more than uncertainty. It likely would even prefer known ghastly news than no news, or at least to skip the current economic schizophrenia. The problem is that even if you support President Trump’s tariffs -- recent polling shows that about two-thirds of us do not -- the administration’s continued mixed messaging on trade is damaging on its own.
Unsurprisingly, US stocks have soured this year under these conditions. Through April 25, the S&P 500 is -6% although shares rebounded some last week after the President “reassured” the market that he would not fire Federal Reserve Board Chair Jay Powell (although the week before he said Powell was a “loser” and that he “cannot be terminated fast enough”) and that we are negotiating with the Chinese (which they officially deny). Yes, this is the schizophrenia part. I think that we will have a recession if this nastiness continues for much longer. We’ve experienced the “short-term pain” of these policies and this rhetoric, but, like you, I hope that we are really going to see “long-term gain.”
Over the next few weeks, companies will report their financial results for the quarter ending March 31. These data dumps are crucial for investors like me. Some firms have already been to the confessional. Almost without exception, these companies have been warning about the negative impacts that tariffs have already had on their businesses, or the jolt that they expect to feel later this year.
I am essentially on a buyer’s strike until this smoke clears. I am happy to hide in short-term US Treasury bills that are earning a risk-free annualized +4.3%. I still own a shrinking list of AI (artificial intelligence) stocks, but I am mostly risk-off.
Consumer spending accounts for 70% of US GDP (gross domestic product), so the key to avoiding a recession will be you and me. Surprisingly, thus far we have continued to shop, but that may end soon. A “tell” that a turn for the worse may be upon us are the surveys that show American consumer sentiment plunging. The University of Michigan’s Consumer Sentiment Survey index was -8% from March to April and -32% from a year ago. Even worse and buried in the same survey results was a consensus inflation expectation of +6.5% up from +5.0% last month and the highest rate since 1981. Hopefully, we do not turn the clock back that far because that was and we could enter another period of stagflation, which is punk economic growth AND rocketing prices.
That is the worst case scenario. The bull view is that the trade war ends quickly to minimize its bitter short-term effects and to get to those long-term benefits. The market is manic depressive, particularly now. Yes, although I have described the tough issues here, if they were resolved stocks could recover and then maybe soar further. But we must be patient as we are all on (President) Trump Time. In the meantime, feel free to join me in the investment bunker. I have been here for a while, so it is nice and warm.
