“Investors are often drawn to forecasts because they promise certainty in a world that is inherently uncertain”
– Howard Marks
In our April commentary written on April 7th, we wrote that “extremes in direction are usually followed by extremes in the other direction” and “investing success depends on keeping your head when those around you are losing theirs”. Both ideas have been validated since. At the intra-day lows on April 7th, the market was down almost 15% in just 3 trading days. The market has rallied almost 15% since, through 4/29 based on data from S&P. Those that kept their heads may find that their accounts are down less than they fear, as the S&P 500 is down just 5.5% for year through 4/29 - after consecutive 20%+ years.
Of course, investors are wondering what comes next, and how proposed policy will affect the economy. We don’t have the answers to this, and we advise clients to be wary of those that claim to. We do know that the economic data in hand is still supportive of continued economic growth, though the risk of future deterioration is significant. There have been declines in soft data (such as consumer sentiment) in recent weeks, but, with 2022 as an example (when a Bloomberg survey of economists suggested 100% chance of a recession), that may not translate into hard data (such as consumer spending). The recent negative GDP report is distorted by a surge in imports (which subtract from GDP) ahead of potential tariff implementations.
As investors, you are not directly invested in tariff policy or economic data. These factors affect corporate earnings to varying extents, but ultimately corporate earnings power will drive the market over the long term. The 1st quarter earnings reports thus far have exceeded expectations, with 11.1% growth compared to the 1st quarter of 2024 according to Evercore. Surprisingly, corporate guidance trends for the 2nd quarter have been more positive than past historical averages, according to data from Factset through 4/25. Still, it is reasonable to assume that corporate earnings over the balance of 2025 will be lower than initially assumed, and analysts have lowered their future estimates.
As written on April 7th and discussed in our market call on April 15th, our base case has been that the market is likely to trade in a volatile range for a few months, similar to periods following swift declines in 1987, 1998, and 2011. Unexpectedly, in the rebound of the past few weeks, there have been several indicators that support a durable advance in the market. Subjectively, it is somewhat reminiscent of April 2020, when measures of demand in the stock market seemed premature compared to the uncertainty in the broader landscape. Today, we have not seen enough to tilt the weight of the evidence or change our view. But, it is a good reminder that the stock market doesn’t wait; it is forward looking and often front-runs changes.
Moving forward, we suggest investors remain open minded about a wide range of outcomes – from a further decline to a quick recovery. We are not able to predict which path the market will take. But we will follow our objective process no matter what happens in an effort to position accounts appropriately. Whatever the next few months hold, we are steadfast that the evidence suggests the market remains in a secular bull market with years left to run.
This is being provided solely for informational and illustrative purposes, is not an offer to sell or a solicitation of an offer to buy any securities. The factual information given herein is taken from sources that we believe to be reliable, but is not guaranteed as to accuracy or completeness. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation or needs of individual investors. Employees of Janney Montgomery Scott LLC or its affiliates may, at times, release written or oral commentary, technical analysis or trading strategies that differ from the opinions expressed here.
