Author: Mark Rich

11 Apr

Posted at 14:07h in Market Commentary by

Last week we highlighted President Trump’s proposed retaliatory tariffs. This week has quickly turned that message into old news.

 

To recap what has happened:

On April 2nd, the US announced reciprocal tariffs with a very simple calculation: a 10% floor and a tariff equal to essentially half of the trade deficit the US has with the associated country.

While the market was slightly positive prior to this announcement, the reaction to larger than expected and more widespread tariffs was met with heavy selling across all markets.

This was a market shock. The selling was more initially tied to growth companies with elevated valuations. Diversified portfolios held up better due to more resilience from value and international stocks. Not to mention, fixed income acted as the safe haven that investors hope for in a diversified allocation.

The Trump administration stoked the flames of the market over the last week by saying things like the market drop was a mag-7 problem, not a MAGA problem. Or saying that markets needed to “take their medicine”. It appeared as though the administration was hostile towards wall street.

On Sunday, overnight markets were forecasting north of 5% drop with some international markets selling off more than 10% overnight. Cooler heads seemed to prevail on Monday morning, with the S&P opening down 4% (well off of the pre-market lows).

The S&P rallied on Monday morning on an unconfirmed news report that Trump was implementing a 90-day delay to tariffs. Shortly after this report, the White House denied any delay in tariffs and called the report “fake news”. Markets had a 7% swing in the matter of minutes before giving up this positive performance as the reality sank in.

On Tuesday we saw the largest intraday move in the stock market since the great recession. After starting the day positive, we finished the day sharply negative. Reciprocal tariffs went into effect Tuesday night.

In the few days before leading up to Wednesday’s announcement all markets generally traded in lockstep, with nowhere to hide. Even bonds experienced this selling pressure.

Finally, on Wednesday:

  • Overnight, bond yields rallied materially. A move that is not consistent with a market selloff. There were a number of speculations – Foreign bond sellers? Bank failures? Hedge fund leverage?
  • In the morning, Jamie Dimon (CEO of JP Morgan) made strong comments noting a recession is a likely outcome of the Trump tariff policy.
  • That same afternoon, Trump decided to delay reciprocal tariffs for 90-days for all countries willing to negotiate. This left China as the only country facing material tariffs.

While reciprocal tariffs were paused, the 10% base tariff rate remains in place. Additionally, product and sector level tariffs remain in effect. However, Trump noted that they would consider company level exemptions from tariff policy.

Markets reacted strongly to the news of this 90-Day pause. We saw the largest intra-day market swing in history. The S&P 500 finished the day up 9.52%, the best single day performance since 2008. However, the euphoria of Wednesday wore off quickly on Thursday, with major indexes falling more than 4%.

What now?

  • The 90-Day pause shows that the administration at least has a heartbeat on this tariff policy issue. It removes the biggest fear for markets which was a growing concern over the competitive positioning of the US in global trade. It shows that the administration is at least willing to work with allies, while still holding a hard stance on trade.
  • It leaves investors with a high water mark on tariffs and now a near term base. While the range is wide, this is more information than we had a week ago and leads to less uncertainty. This uncertainty has been the driver of negative market performance over the last week.
  • It is now clear that the main focus for the administration is China. As part of the announcement, the administration also increased the tariff on China, now sitting at 145%. China has noted that they are willing to work on a deal that is good for both sides, but will fight “to the end” if the US is not willing to work towards a compromise. Most recently, China upped tariffs on US imports to 125%.

 

Procyon’s Perspective

  • We view the developments on Wednesday as a major positive in the trade/tariff discourse that has played out over the last week. However, material uncertainties remain in the market as it relates to the escalating trade war with China, the impact on inflation, next steps for the Federal Reserve, and earnings/guidance going forward. There is a lot that needs to be decided between now and the “end” to this trade policy. This uncertainty will continue to lead to market swings to both the upside and downside.
  • Wednesday was an example of just how quickly things can change. Market reactions can be violent in times of extreme uncertainty. As long-term investors, we look for attractive entry points for positions that we want to invest in for the long term. Intraday or intraweek volatility may provide those opportunities, but making quick changes to portfolios in light of headlines and market reaction can do more harm than good.
  • We continue to watch markets closely. As stated in our prior commentary, we are confident in the long-term economic future of the US. We view the developments this week as steps in the right direction, but continue to acknowledge the uncertainties that remain which can lead to future volatility.
  • Finally, we continue to emphasize the importance of diversification and active management in this time period. Diversification has helped weather the storm this year and we continue to expect that going forward. While all equity markets are negative year to date, fixed income is positive, alternatives have held up relatively well, and exposure to value and international markets has provided some protection on the downside.

We will venture to keep you updated as conditions develop. Please reach out to your advisor with any concerns.

 

 

 

 

14 Mar

Posted at 13:54h in Market Commentary by

Over the past several weeks, tariff discussions have dominated financial news, creating a climate of uncertainty that has rippled through markets. The Trump administration’s recent move to propose a 25% tariff on Canadian aluminum and steel -only to retract the decision later that same day- illustrates just how unpredictable trade policy can be.

The dynamic environment has left market participants trying to guess where these tariff talks will settle. Concerns over the potential inflationary impact of tariffs and rising recession probabilities have led to heightened volatility over the last several weeks.

Couple this rising uncertainty with historically elevated US equity valuations and you create a backdrop for a market pullback like we have seen. We have even seen some asset classes enter into correction territory (10% drawdown) with others holding up relatively well (international markets and value stocks).

At the core of this volatility is the fundamental reality that tariffs alter competitive dynamics across industries, creating both winners and losers.

Key Impacts of Tariffs on Investments

  • Beneficiaries: Domestic industries shielded from foreign competition (e.g., U.S. steel producers during tariffs on foreign steel).
  • Losers: Companies dependent on global supply chains (e.g., auto manufacturers using imported parts).
  • Corporate Profits & Costs: Higher tariffs increase costs for companies that rely on imported materials, potentially lowering profit margins (e.g., Apple’s costs rise if tariffs on Chinese components increase).
  • Consumer Spending: Higher import costs can lead to inflation, reducing consumer purchasing power, which affects retail and consumer goods stocks.
  • Stock Market Volatility: Tariff announcements often lead to market swings as investors adjust expectations based on trade policies.
  • Currency Movements: Tariffs can impact exchange rates, affecting multinational companies and emerging markets.

 

Investment Strategies Around Tariffs

While uncertainty is never comfortable, investors can take a disciplined approach to navigating tariff-driven volatility.

  • Macroeconomics: For better or worse we believe tariffs are inflationary. There will be upward pressure on prices of goods related to tariffs as historically this has been the case, and we have no reason to think this time is different. Additionally, the US economy has potential to experience some bumps and bruises as a result of this transitory time period.
  • Commodities & Alternatives: Some investors hedge against trade tensions with commodities, domestic-focused real estate and hedge fund exposures.
  • Company Specifics: Companies with strong domestic supply chains may be less affected and more resilient. International supply chains became strained ahead of covid as a trade war had already begun and may become more strained as tariffs persist.
  • International Markets: Countries facing tariffs may see slower growth, impacting investments in their markets. Furthermore, countries that are on less stable economic footing are most at risk.
  • Asset Allocation: Procyon believes strongly in diversification as it remains essential as the various tariffs are renegotiated on an ongoing basis. We have already seen the benefits of diversification as asset classes have reacted vastly different in the market drawback. Growth stocks and Small Caps are down over 10% since February 18th. Value stocks are down -5.6% and international stocks are down just -1.35%. Fixed Income markets are up over that same time period.*

 

Tariffs in Historical Context

While today’s trade tensions may feel unprecedented, tariffs have been a fixture of global commerce for centuries In Ancient times, tariffs existed as a way to regulate trade and raise revenue. In the 16th-18th century, Europe used high tariffs to protect industries and control trade with a focus on wealth accumulation. In the 19th century, the industrial revolution sparked debate between free trade and protectionism. In more recent history, the WTO reduced tariffs globally in 1995, but trade tensions in 2018 reintroduced protectionist measures. In the U.S., tariffs are currently being deployed with two primary objectives:

  • Protectionism: The US is using tariffs to communicate to neighbor nations that they need to secure their borders to the United States (International Emergency Economic Powers Act or IEEPA) due to flows of illegal drugs, undocumented immigrants and contraband.
  • Trade Deficit: The US is using tariffs globally (Fair and Reciprocal Plan) to help offset trade imbalances with other nations. In January the US trade deficit was $131.4b.

President Trump’s 2025 tactics rhyme with his actions throughout 2018. We saw a similar drawdown in early 2018 as concerns over a trade war spooked markets. Over the next several months, markets remained choppy as the tug of war between US and China continued. Finally, as the threats subsided and the tariffs settled, markets rallied nicely before a December sell-off that was not trade-related.

Lessons learned from that time period still ring true today in our portfolios. Namely, the benefits of diversification, ensuring you are properly allocated according to your plan and risk tolerance, and the ability to be patient in the face of volatility.

*Source: Ycharts.com

 

 

 

 

 

30 Jan

Posted at 20:37h in Market Commentary by

MARKET UPDATE: RECAP OF KEY TRENDS IN 2024 AND OUTLOOK ON WHAT IS AHEAD FOR 2025

While the 4th quarter was a volatile ride, US equity markets finished the month higher, capping off another year of 20%+ returns. Not all markets were created equal, however, as international markets saw large declines in the quarter, ending the year with single digit positive returns. Finally, fixed income markets were the focus towards the end of the year as yields moved rapidly amidst election results and Federal Reserve rhetoric. Fixed Income markets saw contractions in the 4th quarter, finishing the year just slightly above 1%.

GOOD NEWS IS BAD NEWS?
Macroeconomic data points continued to be strong at the end of the year. Year over year inflation (CPI) reached as low as 2.4% in September, and despite the small pick up at the end of the year (2.9% December reading), remains trending towards the Fed’s long-term target. Third quarter GDP continued to show strength, growing at a 1.2% rate from the prior reading. Finally, the employment market has been remarkably resilient with the unemployment rate sitting at 4.1%, and the economy adding 256,000 jobs in December.

On paper, this has given a nice backdrop for the Fed to continue on their rate cutting cycle throughout 2025. However, markets have not been so sure of this. Throughout the 4th quarter, we saw the 10-year treasury rate move from 3.81% to 4.58% at the end of the year. This has extended into early 2025, with the 10-year treasury now sitting just shy of 4.8% as we write this.

 

08 Jan

Posted at 14:44h in Market Commentary by

MARKET UPDATE: PRE-ELECTION INSIGHTS

Both equity and fixed income markets broadly moved higher throughout the 3rd quarter, building on a strong firsthalf.
•Large cap value stocks, small cap stocks, and international markets emerged as the standout performers,contrasting with trends seen in the first half of the year, where US large cap growth stocks dominated.
•The market rotation in the 3rd quarter is a welcome sight and is a positive for the overall health and continued strength ofthe stock market. We have highlighted the need for broader market participation and have positioned portfolios for thisreality.
Election Time
•As we enter the 4th quarter, our focus turns to the election and its impact on the longer-term market trajectory.While rhetoric has grabbed headlines to this point, the conclusion to the election will allow us to fully evaluate whatthe next 2 years of fiscal policy will look like.

13 Dec

Posted at 19:01h in Media Articles by
NOV 11, 2024

Wealth managers weigh in on what to do with their cash positions if the Fed keeps cutting rates.

Okay Wall Streeters. Like the result or not, the election is over. Time to stop watching the polls and get back to what you do best – watching the Fed, of course.

The Federal Reserve started its rate cutting cycle with a 50 basis point bang in September, taking the proverbial ax to short term bond yields. The market expectation is that the Fed will continue to cut rates heading into 2025, albeit in less-harsh, 25-basis-point increments.

And while the longer part of the yield curve seems to be ignoring the Fed’s determination to lower the cost of money of late – check out the spike in 10-Year Treasury yields, especially since Trump’s victory – the Fed generally gets its way on the short end, which means investors will be earning less on the cash in their portfolios.

So if that is indeed the case, what should advisors and investors do with the money they’ve been holding on the sidelines?

Bobby Jones, managing director at Americana Partners, continues to have a 10-percent allocation to cash and cash equivalents for most of his clients.

“Over the past 18 months, we have taken full advantage of the attractive yields offered in the US Treasury market, where our clients have received a 5-percent-plus annualized yield while taking on US government risk,” Jones said. “While there haven’t been many pullbacks in the equity markets, we were able to invest some of our cash reserves during volatile times like October 2023 and July 2024.”

Jones said he expects there will be volatility in the coming months as investors grapple with slowing global growth, ongoing geopolitical turmoil, and the impact of the Fed’s rate decisions. And when that volatility hits, he is ready to move out of his cash position.

“We stand ready to add to risk assets during these volatile periods but are preaching patience in the near term,” he said.

Meanwhile, Mark Rich, director of investments at Procyon, said he believes the benefits of reducing cash and locking in longer term rates has been diminished as the market has essentially priced in all of the Fed’s anticipated rate cuts.

“We have implemented a barbell approach to fixed income management where we incorporate cash and short-term fixed income to benefit from higher rates on the short end of the curve, and longer duration securities to protect against rates falling faster than anticipated,” Rich said. “On the municipal side, we have recommended a move out of cash into an intermediate- to longer-term municipal bond portfolio.”

For short-term investors, Tim Bartlett, senior portfolio manager at Unique Wealth, said leaving a higher percentage in cash with an approximate 5 percent yield is a good option. For longer-term investors, however, he said that as rates decline it would be a “prudent decision” to move these dollars into equities, alternatives, hedged solutions, and private credit.

Finally, Geoff Schaefer, financial planner and wealth advisor at Intergy Private Wealth, said cash is meant for short-term circumstances, and if one’s spending horizon is less than three years, then sticking with cash is more than appropriate.

“Investing is meant for the long term, not a presidential term or economic cycle. Attempting to time the market is often a foolhardy endeavor. If money in your plan and life is meant to be invested, it should be invested,” Schaefer said.

Right now, he said the biggest consideration with cash is limiting it to what one truly needs, because as rates drop, the interest on that cash will drop as well.

“If you’ve been lazy about allocating your cash because your money market fund was paying 5.5 percent, it’s time to take action. If your plan needs safer dollars, look to high-quality corporate bonds or Treasury bills. If your plan allows for longer-term investments, invest in the market,” he said.

09 Aug

Posted at 14:01h in Media Articles by

Dynasty Affiliates Predict Equities Markets And Discuss Economic Factors, Opportunities And Risks

As we look towards the second half of 2024, uncertainty remains around the markets, partially driven by the Federal Reserve, which may cut rates in September for the first time since March 2020 if economic data stays on course. The upcoming election also clouds the road ahead, as well as Monday’s market turbulence.

Advisors, wealth managers and – most importantly – their clients, need to examine the factors, trends, opportunities and risks in the equities markets for the second half. To hear seasoned views on how economic indicators will move, predictions for stocks, and potential opportunities and pitfalls, we reached out to three senior executives from affiliates of Dynasty Financial Partners.

Stock Market Predictions

Examining how the stock markets will fare for the second half of 2024, Matt Liebman, Founding Partner and CEO of Amplius Wealth Advisors, caveats that short-term forecasts present challenges, and states that “we expect volatility to remain fairly elevated at least until this unusual election is completed.”

Eric Branson, Director of Investments at Cyndeo Wealth Partners, also sees “choppiness as we approach the election, as the political winds shift back and forth between the candidates.”

According to Branson, the more significant factor is how the Federal Reserve handles interest rates. “The current data has increased the markets’ anticipation of a rate cut in September and again later this year. Once these are known then it is our opinion that the markets will grind slightly higher by year end from current levels.”

“Stock market performance in the second half of this year, we believe, will present more opportunities for active management than the first half of the year,” says Mark Rich, Director of Investments at Procyon. “The names that have led the market will need to start showing proof that AI is worth the massive investment that is needed to become a leader in the space.”

Rich says that the best opportunities will be in stocks outside of those that led the first half of the year. “We are allocating more towards small and mid-cap stocks along with a focus on more balance between growth and value going forward. These names present better entry points from a valuation standpoint. However, quality fundamentals are more difficult to find within these asset classes, and strong active managers will have a leg up on the passive index exposure.”

Key Economic Indicators

These predictions of how equity markets will fare in the second half of the year are partially based on the performance of economic indicators such as GDP, unemployment and inflation.

Rich expects the Fed to progress against its inflation target of 2%, but not to reach that target by year end.

In a similar vein, Liebman says that “inflation will decrease slightly as the impact of the Federal Reserve’s tight policy impacts the economy.”

Branson says that higher interest rates will at some point start to bring inflation under control. “The question of when we will start to see the data reflect that might have been answered with the recent employment data.”

He says that markets will look to see if the Fed can “land the plane” of the economy smoothly, and, in the meantime, investors can expect turbulence. “Even though no one likes turbulence, it is a normal part of the journey to get us to our destination.”

Rich points out that recently the employment “numbers have started to roll over. The overall employment environment remains strong historically, but has a tendency to loosen quickly when these numbers start to trend in the wrong direction.”

“Barring a material economic slowdown, we expect interest rates to be the driving factor for stock market performance in the near term,” says Rich. “With the market expecting cuts starting in September of this year, a lower interest rate environment should be most positive for small cap stocks that are more reliant on debt. Additionally, growth should benefit from lower interest rates as they can finance their growth at a more reasonable cost.”

Risks And Opportunities

While viewing it as unlikely, Rich says that the largest threat to the market is a reacceleration of inflation, which would force the Fed to shift towards restriction again.

Branson states that the largest risk – but also the largest opportunity – is market turbulence. “If the investor can see past the momentary turbulence and look for discounted entry points to good businesses, then when the turbulence settles down they will be glad they did.” He cautions against a fearful run for the exits during turbulent markets.

Rich states that the largest opportunities today, which he views as AI and the upcoming elections, are also the largest risks.

“AI is a transformational investment opportunity and should see continued growth,” he says. “However, companies involved in the AI trade have already experienced significant price increases and many are trading at lofty valuations relative to history.”

While stating that the elections should not have any long-term impact on equities markets, in the near term, Rich says, “Attractive entry points may present themselves as a result of rhetoric or the results of the upcoming election.”

Liebman views concentration as a central risk and diversification as an opportunity. “Large capitalization U.S. technology stocks have been the best performers over multiple recent time periods. Investors are at risk from becoming too concentrated in those few large stocks. We think that there is a real opportunity to diversify to other areas of the market.”

Also finding benefits in diversification, Branson sees opportunity in investors broadening out from the currently popular AI trade and the “Magnificent Seven” stocks, which are Alphabet, Amazon, Apple, Meta Platforms, Microsoft, NVIDIA and Tesla.

31 Mar

Posted at 12:40h in Blog by

On Wednesday, March 31, 2021, Antonio Rodrigues, Partner & Senior Portfolio Manager of Procyon, hosted the online event focusing on investing and economic trends accelerated by the COVID-19 pandemic.

Joining Antonio was Mark Rich, CFP®, and Senior Financial Analyst, and Chief Investment Officer of Dynasty Financial Partners, Joe Dursi.

Watch by clicking below!