In order for me to help you understand what’s happening in markets lately, I think I would have to set this letter on fire and put it in your mailbox. But we use email (much safer) and so I think I’ll go with one of my father’s favorite aphorisms: “Aside from that Mrs. Lincoln, how was the play?”
The Trump tariffs were announced last Wednesday after the close of the stock markets. In the two plus trading days since then, we have seen more losses than at any time since 1987. We have blown right through a 10% loss (correction) and through a 20% loss in the Nasdaq and Standard & Poor’s 500 (bear market).
As we have mentioned for the past few weeks, we have been raising cash for many of our clients, and reallocating to bonds, dividend-paying stocks, and international stocks. This is not a blanket recommendation, and your needs may be different. Likewise, we are advising most of our clients who are properly allocated to sit tight and not sell into the tumult. Remember that you don’t own “the market”. You own specific companies and just go to the market to buy and sell shares. Please call us if you want personalized suggestions. (203.458.5220). Aside from that, most of our clients will stay put and let the turbulence play out until we get clearer signals about what is coming next.
If we were just waiting for economic conditions to settle down, that would be one thing, but we are waiting for the Administration to decide if it is negotiating with foreign countries about reciprocal tariffs. The tariffs are due to go into effect this Wednesday, the 10th. That leaves time to make changes.
There has been a lot of money, including foreign money, flowing into U.S. Treasury debt, which is considered one of the safest investments. So much so that the dollar has strengthened in the last couple of days. But if the tariffs remain, and foreign investors have less need for dollars, the dollar will weaken. Will the Chinese yuan take over as the world’s reserve currency?
As I write this, markets have reversed direction and gone positive. The news? A rumor that the president is thinking about pausing the imposition of all tariffs for 90 days, except those on China. It is no coincidence that this announcement of a consideration of a change in thinking came right on the heels of the S&P hitting bear market territory. But with the contradictory information we keep seeing (this speculation was made on Fox News by Kevin Hassett, Director of the National Economic Council, and NOT confirmed by the White House) we have no news on which we can rely to make decisions. (White House now says this is fake news. Stocks drop again.)
As an example of “reciprocal” tariffs, Vietnam, a very friendly trading partner, has a long-standing 5% tariff on U.S. goods entering the country. On Wednesday, President Trump imposed a 45% tariff on goods from Vietnam. If the Vietnamese come to the table to negotiate tariffs, what can they possible offer?
Tariffs are imposed by the government on foreign goods entering the country. It is paid by importers, not the foreign countries or manufacturers. It is passed on to distributors and then to customers. According to CNN, these tariffs would amount to the largest tax hike in U.S. history. And what would the money be used for? Most pundits believe that the Trump Administration is trying to make the tax cuts from the first Trump presidency permanent. Those benefitted the top 1% of earners and big corporations the most, and probably explain why the billionaire class continues to support the president in the face of massive business disruption.
We will try to keep you up to date on the economic news of the day, and we are very happy to speak with you if you call us. We know chaos is confusing and alarming, but we’re still here.
For the week ending on April 5th, the S&P 500 finished at 5,074, the Nasdaq Composite at 15,587, and the Dow Jones Industrials at 38,214. The yield on the ten-year Treasury Note closed at 3,985% (but is back above 4% today). U.S. crude oil cost $59.81 per barrel, N.Y. gold cost $3,037.65 per ounce, and one Euro was worth $1.10.
Elizabeth E. Cook
Partner, Diastole Wealth Management
News and information presented here was gathered from sources believed, but not guaranteed, to be reliable, including (but not limited to) CNN, CNBC, Bloomberg, USA Today, Reuters, The Associated Press, The Wall Street Journal, The New York Times, Yahoo Finance, Morning Brew, Axios, Business Insider, Bloomberg, and Barron’s. If you have questions, please call us at 203.458.5220, or reply to this email to reach me, Liz Cook.
A nearly 100-year-old Philadelphia mother just gave birth to quadruplets. Okay, she is a Galapagos turtle, but still, these are her first hatchlings. They started pecking out of their shells on February 27th and will be on display starting April 23rd. Currently, the baby turtles are doing well and gaining weight. They are now about the size of a chicken egg. The mother turtle is unconcerned about the stock market or the vicissitudes of government bonds. She has been playing the long game. Her name? Mommy. (No kidding.)