In this month's issue:
What’s in a Recession?
Mark Luschini
Over the last several months, the non-trivial risk of a recession has surfaced partly due to moderating economic activity but mostly related to the prospective impact tariffs would have on prices and export growth. However, the probabilities that forecasters have assigned to one have gyrated wildly, predicated upon the latest twist to developments in trade policy. While we do not believe a recession is inevitable or even imminent, the possibility is high enough to monitor advance warning signs and understand the likely market impact.
Fortunately, recessions occur rather infrequently. The last one was in 2020 amidst the COVID-induced lockdowns and lasted a historically brief two months. Before that, it had been more than a decade since the deep recession caused by the Great Financial Crisis of 2008/2009.
Fixed Income Positioning
Guy LeBas
In the intermediate term, the level of interest rates in the U.S. is a function mainly of economic conditions. When growth is strong, or inflation is rising, interest rates tend to go up; when growth is weak, or inflation is falling, interest rates tend to go down. One major reason is the influence of the Federal Reserve, which sets overnight interest rates, and those rate hikes or cuts “echo” out the yield curve from overnight to 2-, 5-, 10-, and even 30-year interest rates. An economist might call this phenomenon “monetary dominance,” and most large developed markets share this feature to varying degrees.
Monetary dominance is also one reason stocks and bonds in the U.S. usually move in opposite directions: when growth is slowing, stock prices often fall, and bond prices usually rise. That is what makes April’s financial market swings all the more unusual. The experience was especially frustrating for investors, as bonds normally cushion equity losses, but on many days in early April, long-term bond values were more volatile than the S&P 500! About one in four trading days in April had the bond market experiencing a wider trading range than the stock market, which is not unheard of but is about double the typical incidence.
The First 100 Days—What’s Next?
Gregory M. Drahuschak
As April ended, many press outlets detailed what had happened during President Donald Trump’s first 100 days of his second term in the White House. His first 100 days left the S&P 500 down about 7.7%, which was the second-worst performance since President Richard Nixon when, during the first 100 days of his second term, the S&P fell 9.9%. Nixon had the distinction of ending that year with the largest loss among the 20 possible periods since 1944 (-17.4%).
The Nixon administration faced enormous headwinds mostly out of its control, like the 1973 oil embargo, the budget deficits from the Vietnam War, and the fall of the Bretton Woods system. Of course, Nixon’s biggest problem was self-inflicted when the Watergate incident doomed his administration. Many have argued that self-induced problems resulted in Trump’s first 100 days of lackluster equity market performance as tariffs overwhelmed almost everything else.
You can read the full Investment Perspectives here.
The information herein is for informative purposes only and in no event should be construed as a representation by us or as an offer to sell, or 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 by us as to accuracy or completeness. Charts and graphs are provided for illustrative purposes. 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.
The concepts illustrated here have legal, accounting, and tax implications. Neither Janney Montgomery Scott LLC nor its Financial Advisors give tax, legal, or accounting advice. Please consult with the appropriate professional for advice concerning your particular circumstances. Past performance is not an indication or guarantee of future results. There are no guarantees that any investment or investment strategy will meet its objectives or that an investment can avoid losses. It is not possible to invest directly in an index. Exposure to an asset class represented by an index is available through investable instruments based on that index. A client’s investment results are reduced by advisory fees and transaction costs and other expenses.
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 within. From time to time, Janney Montgomery Scott LLC and/or one or more of its employees may have a position in the securities discussed herein.
