Market Volatility Has Increased, Why Now Isn’t the Time to Panic 

Five Things You Should Know

1. Equity Markets – were mixed this week with U.S. stocks (S&P 500) down –1.01% while international stocks (EAFE) rose 0.12%. 
2. Fixed Income Markets – were up this week with investment grade bonds (AGG) up 1.25% and high yield bonds (JNK) up 0.49%. 
3. U.S. GDP – Following a quarter of cold temperatures and tariff concerns U.S. economic growth slowed to an annualized 2.3% in Q4 of 2024, down from Q3’s growth rate of 3.1%. Meanwhile the personal consumption expenditures price index (excluding food and energy), saw an upward revision to 2.7% from previous estimates of 2.5%. 
4. China Tariffs – Following President Trump’s announcement on Thursday that China will be hit with an additional 10% in Tariffs on Chinese imports starting March 4^th, China’s Ministry of Commerce have stated it “firmly opposes” the latest threat and reiterated their intention to take “necessary countermeasures” in needed. These are in addition to the 10% tariffs imposed on China on February 4^th.  
5. Key Insight – [VIDEO & ARTICLE] Emotions are heightened and investors are trying to assess current market risks.  This week we break down some key data points to help us understand what could push US Stocks in 2025.

Insights for Investors

By Jake Timm

Market Volatility Has Increased, Why Now Isn’t the Time to Panic 

As market volatility has increased over the past few months, I’ve noticed that conversations with clients have increasingly turned toward a sense of fear.  Fear of the political environment, fear of the economic outlook and general FEAR of the unknown.  This isn’t uncommon.  The same part of the brain that is triggered when we are in mortal danger, also gets triggered when we lose, or perceive we have lost money.  My analogy is, getting chased by a bear, is at least psychologically, the same as getting chased by a bear market.  Smart, logical, rational people can turn increasingly irrational very quickly during these times. 

Why now isn’t a time for panic… STAY THE COURSE. 

Although difficult, in times of increased emotion I think it is important to focus on the math as investors, which inevitably helps us make sense of whether or not our fears are rational. 

We will start with the consumer.  Moving into 2025, according to Goldman Sachs, the average consumer is in a pretty good place financially.  The “misery index” which is the measure of economic distress (inflation + unemployment), has been worse 80% of the time than it is today going back to 1978.  Additionally, Household Wealth, which is net worth as a percentage of disposable income, is at the 98^th percentile rank going back all the way to 1954.  To summarize, consumers drive the economy, and the consumer is still feeling pretty good from a relative perspective.   

Additionally, even though the media continually tells us that consumer debt is at all-time highs, we can see (above) that as a percentage of disposable income, the average consumer debt to disposable income percent is fairly low comparatively looking back at the last 25 years. 

To summarize, sure, lots of problems exist (and always have) for the average person trying to make a living and get by.  But that doesn’t mean we are in a dire situation at this point, if anything, the data (math) tells us otherwise. 

“I hear you Jake, but markets are expensive and we’ve recently hit ALL-TIME highs for US Stocks.  Isn’t that a good indicator that we are in for a downturn”? 

Maybe, but again, let’s look at the data.  

Looking back at the average market run (gains) coming off a market bottom, you can see that we are currently just over 2.3 years in the current “bull market”.  As we can see, the average length of a bull market environment following the market bottom is 5.77 years going back to 1970.  Now this doesn’t guarantee continued market upside from where we currently are, but most analysts (pretty smart people) are in agreement that 2025 has room to run if we as investors keep a level head and don’t get emotional when markets get volatile. 

I’ll leave you with this.  No one has a crystal ball and we certainly can’t predict the future.  Understanding that short-term markets can certainly move based on emotional investment decisions, but long-term markets have shown to be efficient and move based on fundamental economic activity and corporate profits.  Remembering this is how you achieve your long-term investment goals.  Focus on the math, not on the emotion.  Assess your risk and align that with your financial plan.  And when all else fails, stay the course and give us a call if you need encouragement.  You’ve got this. 

Have a wonderful weekend, 

Jake and the team at TEN Capital 

Data, Just the Data

• U.S. Consumer Sentiment – The University of Michigan consumer sentiment gauge for the U.S. saw a sharp downward revision to 64.7 in February for the lowest level since November 2023. Both the current and future economic condition components saw decline, with sentiment decreases unanimous across groups by age, income, and wealth.  

• U.S. New Home Sales – fell 10.5% in January to a seasonally adjusted annualized rate of 657,000 as high mortgage rates continue to dampen demand. Median sales price for new homes now sits at $446,300 while average sales price is $510,000.  

• U.S. Durable Goods Orders – rose 3.1% month-over-month in January, the highest gain in 6 months. The jump was primarily led by a 9.8% surge in transportation equipment, with new orders little changed when transportation is excluded. 

• U.S. Jobless Claims – rose by 22,000 initial claims last week to a total of 242,000 and above market expectations. Recurring claims on the other hand fell 5,000 to a total of 1,862,000.  

• Euro Area Economic Sentiment – The ZEW indicator for Economic Sentiment for the Euro Area gained 6.2 points in February to 24.2, marking the highest reading in seven months. Of analysts surveyed 58% expected no changes in activity, 33.1% saw improvement, and 8.9% anticipated contraction.