Is it just me, or does the news cycle seem shorter than a TikTok video these days? In the past, announcing a 50% Tariff on the European Union would have fueled headlines for the year, but in today’s world, there is a new policy before the end of the weekend. This cycle has been on rinse and repeat for several months now.
Because of how crazy things have been, I figured we would end the commentary with a little focus on discipline. As always, we will run through our monthly market highlights and what we are watching. The end of the commentary is intended to help us all stay disciplined through these uncertain times. Emotions can go up and down along with stocks, the news, and things we feel strongly about. The key is to react to facts rather than feelings. I discuss this in more detail below. I hope you enjoy!
- Markets were very strong in May, led by the US Tech sector:
- S&P 500 was up 6.3% in May and is now up 1.1% year-to-date.
- Nasdaq Composite was up 9.7% in May and is down 0.7% year-to-date.
- International Stocks were up 4.7% in May and up 14.4% year-to-date (as measured by the MSCI ACWI ex-USA).
- Source: YCharts as of May 30th
- Renewed focus on the investment and potential in Artificial Intelligence helped fuel the rally we saw in May. Earnings from the Magnificent 7 (the seven biggest companies in the S&P 500) drove the conversation back to the build-out in data centers, computing investment, and advancements in capabilities. It may feel at times like tech, company spending, and reinvestment are stalling, but our confidence in tech remains strong through these storms.
- Tariffs continue to dominate the news, with the Court of International Trade ruling against President Trump’s declaration of emergency to impose sweeping tariffs without Congressional approval. That decision has been appealed, and the tariffs will remain in effect during the appeal process. This adds more confusion to an already puzzling situation. If the courts rule that tariffs are unconstitutional after the stay, the government may have to reimburse these tariffs plus interest to importers. Adding to the uncertainty is China continuously posturing that they are not going to get pushed around by the US. Our concern is how this impacts your investments. There is a lot of talk, and, until talk becomes action (and then law), we understand the need for continuous monitoring and that things are subject to change.
- The ICE US Dollar Index was flat on the month but is down 8.3% year-to-date. Concerns around trade policies, a downgrade from Moody’s on the U.S. credit rating, and talk about the legitimacy of the Dollar’s reserve currency status have played into the weakness thus far. A weaker dollar means a few things: less buying power abroad for imported items, but more attractive exports for those abroad buying US goods. Unless importers eat some, to all, of the costs, increased inflation will negatively impact US debt. These scenarios are something the Federal Reserve (the Fed) will monitor and could potentially lower the Fed Funds Rate.
- The Fed met this month and kept rates unchanged, citing concerns about inflation and growth. While inflation has come down and economic data remains relatively strong, there are concerns that tariffs may impact supply chains and costs to consumers, pushing inflation higher and possibly slowing growth. This has not shown up in the data as of yet. The Fed has taken a wait-and-see approach to how things play out, which has caused some public backlash from the President.
- Budget Bill: The President’s Budget Bill made it through Congress and is now off to the Senate. Senators have already expressed concerns over the projected increase to the deficit if the Bill goes through as currently written. We will have to wait and see what happens next, but some market participants attribute the upward pressure on interest rates to the perceived high rate of debt and Washington’s unwillingness to genuinely address it.
It feels a bit like we are at an inflection point on many factors in the market. The U.S. equity indexes are back near highs, seemingly looking past the uncertainty in trade policies. Interest rates are close to flat on the year as concerns flip back and forth between recession, deficit spending, and Fed policy. International stocks have outpaced U.S. stocks as investors have flocked towards the more attractive valuation, more “predictable” policies, and diversification away from the Dollar’s weakness.
Yet these things have seemingly already played out, and the argument for “where things go from here” seems convincing on both sides. Some strategists argue that the market is behaving very strong and will continue to new highs. This seems reasonable. On the other hand, some argue that we will retest the lows from April as the possible consequences from recent policies sink in, also reasonable.
Nobody really knows, and that is why now is a good time to refresh ourselves on the fundamentals of investing from one of the greatest investors of all time, Peter Lynch. Below are a few of my favorite and most well-known quotes from Peter that should serve as a reminder that staying humble, rational, and disciplined is really the only strategy which works every time.
- “The trick is not to learn to trust your gut feelings, but rather to discipline yourself to ignore them.”
- “The key to making money in stocks is not to get scared out of them.”
- “Far more money has been lost by investors preparing for corrections or trying to anticipate corrections than has been lost in the corrections themselves.”
As we go through the next few months, it is likely we will be jarred one way or another by our emotions. Try to maintain focus on the plans strategically thought through around your finances and goals when times were less turbulent. During these times, we all need a refresher or reminder to keep our hands steady. We welcome the discussion whenever you are ready to have it!
Enjoy your summer!
Jordan Kaufman
Chief Investment Officer
Green Ridge Wealth Planning
Disclosure:
Green Ridge Wealth Planning, LLC is a registered investment adviser. The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment/tax advice. The investment/tax strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment/tax strategy for his or her own particular situation before making any investment decision(s). You are responsible for consulting your own investment and/or tax advisor as to the consequences associated with any investment.
The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. Any opinions, projections, or forward-looking statements expressed herein are solely those of the AUTHOR, may differ from the views or opinions expressed by other areas of Green Ridge Wealth Planning, LLC, and are only for general informational purposes as of the date indicated.