Markets Exhibit Strong Gains; Bonds Rise

Good morning,

The Dow (+2.5%), NASDAQ (+6.7%), and S&P 500 (+4.6%) finished strongly in a volatile week that started off down sharply on Monday.  Taxable bonds were up 0.7% while tax-free municipal bonds were up about 0.1%.  The 10-year Treasury yield fell 0.07% to finish the week at 4.26%.

In typical fashion lately, the markets are responding to rumors and comments by President Trump rather than economic data.  The markets started the week down, as Trump ramped up criticism of Fed Chairman Powell.  Those concerns subsided when Trump stated he wouldn’t fire Powell, which were followed by comments that Trump would consider reducing tariffs to China, sending markets up sharply for the remainder of the week.  So here we continue to go – the markets are responding daily, or even hourly, to comments or rumors emanating from the White House.

The main economic data reported last week were the Fed Beige Book and Leading Economic Indicators (LEIs).  The Beige Book is a report summarizing current economic conditions across the 12 Federal Reserve districts.  Consistent with the previous comment and how the markets have behaved recently, the Beige Book showed that not a lot has changed since the last report about 6 weeks ago, but expectations for the future saw a sharp rise in expected price increases due to tariffs, and uncertainty has risen.  Really?  It took a Fed report like that to state the obvious that we have been experiencing over the past couple months – uncertainty due to tariffs.  As for LEIs, they were down slightly in March compared to February, but the six-month rolling average has shown a smaller decrease. Consumer expectations, stock prices, and manufacturing new orders were the main contributors to the decline in March.

In the end, nobody likes uncertainty, which leads to market volatility.  Despite the major stock market indices being down 6% - 10% YTD, well-balanced and diversified portfolios are roughly flat for the year.  So long as the uncertainty of tariffs remain in the headlines, we can continue to expect market volatility.  As easy as it may be to say, I know it can be hard to do, but stay calm and continue to remain diversified.

Have a great day and terrific week!

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