Key Takeaways
- Markets Surged But Volatility Remains Elevated Amid Policy Uncertainty
- Tariff Confusion Continues Fueling Market Swings And Investor Anxiety
- Earnings Season Heats Up As Fed Signals Closely Watched
When I was young, I loved a good roller coaster. As I got older, riding a roller coaster meant I was diving deep into the ibuprofen bottle the next day. Markets last week resembled a roller coaster and by the time we were done riding, many of us needed some ibuprofen. At the end of the week, the S&P 500 had gained 5.5%. The Nasdaq Composite was up 7.3%. The Dow Jones Industrial Average had tacked on 5% and the Russell 2000 notched higher by just under 2%. But those gains hardly tell the full story.
Although equites gained on the week, bonds were hammered. Oil, which closed down just slightly for the week had a range of nearly $9. Gold added another 7% to an already huge run this year. Finally, the U.S. dollar lost nearly 3%. The tumult continues to be sparked by trade policy and just what exactly is being tariffed and by how much.
After the close on Friday, U.S. Customs and Border Protection released a list of products that would be exempt from tariffs. That list was largely comprised of technology products such as tablets, iPhones and semiconductors. It was welcome news that lasted for all of about 36 hours. On Sunday morning talk shows, administration officials said the products listed as exempt were not exempt and instead, would be subject to a different set of tariffs. Those tariffs are expected to be announced Monday, though markets seem enthusiastic the announcement won’t be too harsh. As an example, shares of Apple are trading higher by 5% in premarket.
The confusion and fluidity with which policies are being announced and changed is leading to a lot of confusion. You can see that confusion as expressed in market volatility where the VIX closed last week at 37.56, more than twice its historical mean. Confusion is also evident in consumer sentiment where last week’s Michigan Consumer Expectations and Consumer Sentiment surveys reflected a more pessimistic view of economic conditions. I think it will be interesting, as we get deeper into earnings season, to triangulate how consumers see the economic prospects with what companies have to say.
Speaking of earnings, Goldman Sachs is out this morning with their earnings. The company beat on both the top and bottom line. We have a few less common household names reporting this week until Thursday, when Netflix reports after the close. For the quarter, earnings are on pace to increase 7.3%, according to FactSet, with a whisper number of 10%. Because of the pullback we’ve seen in equities recently, the 12-month forward-looking P/E ratio for the S&P 500 is currently 19.
There are a couple things on the economic calendar worth noting. On Wednesday, Retail Sales are due out. Then, throughout the week, we’ll have members of the Federal Reserve speaking, with Jerome Powell talking on Wednesday. I think anytime the Chair of the Fed speaks, markets tend to take note. But given the current situation, I think markets will be even more tuned into hear what Powell is thinking with respect to interest rates.
For Monday, equity indices are higher in premarket. Although the new technology product tariffs are expected today, it looks as though markets are expecting the rates to be significantly lower than initially feared. I’m going to be watching bonds as those continue to be where the greatest tumult rests. Currently, the rate on the benchmark 10-year note is 4.43% while rates on the 30-year bond are 4.85%. I’m also watching volatility which in the premarket is down 11% from Friday’s close. As I mentioned above, the VIX remains very high and so long as it remains at these levels, we can expect choppy trading. Lastly, this is a shortened trading week with markets closed on Friday for Good Friday. It’s not uncommon to see market activity taper off around mid-week when there is a long weekend on the calendar. However, what makes this shortened week more interesting is that it’s April options expiration. Therefore, we could see heightened option activity a little earlier in the week than we might normally. For investors that have options expiring this week, just keep in mind you have one less day. As always, I would stick with your investing plans and long-term objectives.
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