Where Do We Go from Here?

The second quarter started with a BANG as extreme volatility took hold in response to the Liberation Day tariff announcements on April 2^nd. The reciprocal tariffs were significantly higher than expected and led to both stocks and bonds selling off as market participants headed for the exits. On Tuesday, April 8^th, the S&P 500 was approaching a bear market (down nearly 19% from the February 19^th high), the 10-year U.S. Treasury yield rose by 50 basis points, and the odds of a recession were increasing. The following day, reciprocal tariffs were pushed out by 90 days, and a framework trade agreement was announced between the U.S. and China. The updated tariff outline, along with continued strength in earnings, allowed equity markets to rally throughout the quarter. The S&P 500 closed above 6,200 for the first time.

As long-term investors, it is always important to remember that things can move quickly and that volatility is the price we pay for owning publicly traded securities. It is vital not to overreact to a headline or news of the moment. Markets move daily in both directions, and there can be periods of extreme price fluctuations. Since the market bottom of the Global Financial Crisis in March of 2009, the S&P 500 has sold off 5% or more 30 times. Since 1928, there have been 27 bear markets (a selloff of at least 20%), or one every 3.5 years. Even bear markets do not always signal a recession. No one can definitively tell you when the next one will occur or how long it will take to recover.

For historical context, let’s look back at the past two bear markets. The most recent began in December of 2021 and was spurred by the Russia-Ukraine war, significant inflation, and supply chain shortages. Although a recession never occurred, it took 18 months for the market to recover. On the other hand, the previous bear market was the COVID-19 selloff in March of 2020, which took just four months to recover. That selloff was much more severe and was a precursor to recession, but it was the fastest recovery in over 150 years.

Market selloffs always feel scary in the moment, but history shows us that markets eventually recover. Since the beginning of the year, there has been plenty to be concerned about, including global trade upheaval, worldwide unrest with multiple wars raging around the world, and a potential U.S. government shutdown. While it remains to be seen, there is continued optimism that trade deals will be completed and that the new tax bill will help stimulate the economy. The 90-day pause on tariffs, which was set to end on July 9^th has now been extended until August 1^st, could quickly lead to an upswing in volatility. However, quite a bit is still unknown at this point. In the long run, markets move on economic fundamentals, which continue to show growth, albeit at a slower pace. As always, we closely watch the economic data and await the next earnings season (kicking off next week) to give us clues as to where the markets go from here. Until we get clarity on the trade front, we anticipate sideways movement in markets.

This Commentary is provided by Spraker West Wealth Management, a registered investment advisor, and is for informational purposes only. It should not be construed as investment advice and is not intended as a solicitation of any specific product or service. Investments and/or investment strategies include risk including the possible loss of principal. There is no assurance that any investment strategy will achieve its objectives. Information provided is not intended as tax or legal advice and should not be relied upon as such. You are encouraged to seek tax or legal advice from a qualified professional.