“Secular” shift?
Another tumultuous week in the markets. The data continues an indication of slipping consumer confidence including an article in the WSJ indicating that wealthier Americans are cutting back on spending.
It is still too early for the preliminary data to lead to more certain conclusions because the disruption of the new administration accompanied by chaos and court cases only has a history of 2 months. Today, the IRS is saying that tax collections and filings could result in a 10% reduction of tax collections because of the significant cutbacks in personnel and initiatives in having a bottom-line impact. Americans are filing later, delaying payments and potentially being more aggressive in taking tax deductions that are more aggressive. Also, an initiative targeting higher income individuals and businesses has been short circuited by personnel reductions. The estimate in lost revenue is pegged at $500B with the Pentagon budget being $800B. The law of unintended consequences is being revealed every day.
That being said, the SP500 spent a day in correction territory and has rebounded since last week. Indexes are lower this year domestically but internationally, they are positive. International markets have lagged domestic markets for 20 years. In 1988 Japan was the market of choice. Remember when everything was made in Japan? From 1988 until pre-Covid, the Japanese market performance and economy lagged all other markets for 25 years. Are we seeing what is called a “secular” shift? Way too early to tell but the theory of revision to the means says maybe not. In addition, valuation of international markets is a much more favorable comparison than the same exercise in the domestic US market.
The Fed agrees with the position that it is too early to make any assumptions about the impact of the administration's policies; however, the plan for two rate cuts this year seems to be likely. Market gains in the morning grew larger after the Fed statement and press conference. Currently, it seems markets are looking for reasons to go higher. Maybe this is the leftovers of animal spirits that infected markets after the election? As the first quarter ends and we have more economic data to see the short-term impact of policy changes, maybe we will have more transparency over what to expect in the next year. Nike gave a big earnings/revenue warning this week because of the impact of consumer sentiment and tariffs. Other retail companies have made similar comments.
This website is informational only and does not constitute investment advice or a solicitation. Investments and investment strategies recommended in this blog may not be suitable for all investors. SAS Financial Advisors, LLC and its members may hold positions in the securities mentioned within this newsletter. SAS Financial Advisors, LLC is not responsible for any third-party content referenced.
