TRiUMPhing Over Narratives (& Tweets)
Investor Insights, March 2nd, 2018
Five Things You Should Know
- Equity Markets – finished down after a volatile week with U.S. stocks (S&P 500) off -2.04% and international stocks (EAFE) down -2.69%.
- Fixed Income Markets – also saw negative returns this week on rising yields with investment grade bonds (AGG) down -0.16% and high yield bonds (JNK) down -0.72%.
- Powell Confuses Markets – New Federal Reserve Chair Jerome Powell provided his first testimony to the House Financial Services Committee this week where he stated on Tuesday his personal opinion that “the economy has strengthened since December” (when the Fed set their projections for 2018), causing yields to push up and market repricing on concerns of higher inflation along with an accelerated rate hike path going forward. He also stated that stock market moves aren’t a primary concern for evaluating the economy. However, when Powell spoke again on Thursday he appeared to temper his early comments and assured lawmakers that the economy is not overheating and that “nothing suggests” wage inflation is approaching a flash point and reiterated a gradual path of rising rates.
- Trump’s Tariff Talks Roils Markets – This week President Trump announced plans to impose a 25% tariff (tax) on steel imports and a 10% tariff on aluminum imports. Trump also plans to invoke a little-known loophole in the trade legislation that labels cheap metal imports as a “national security risk”, meaning the measures could be imposed without a vote by congress. The announcement was almost universally condemned by the global community with many fearing this may spark similar reactionary actions from foreign trade partners and equity markets declined as a result.
- Key Insight – Reversion to the mean, along with inexplicable short-term market movements, are investing truths/realities that while often painful in short-term only do long-term damage if you allow yourself to be fooled by the narratives that market pundits create to try to explain them that don’t actually reflect reality.
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