Controlled Breathing

It’s been a tumultuous year so far, replete with surprises and hidden dragons. It’s not surprising, then, that sentiment and markets have seen volatile swings in both directions. Only a few weeks ago, it seemed like the sky was falling after the “Liberation Day” tariff announcements.

One after another, Wall Street Banks changed their outlooks and began calling for recession, citing the economic damage the surprisingly high tariffs would inflict. Global risk assets experienced a sudden and accelerated sell off. The S&P 500 breached the official bear market threshold, down some -21% from its peak.

SPX YTD

Yet, as quickly as conditions fell apart, they began coming back together. President Trump subsequently announced a 90-day pause on tariffs, along with various exemptions. That was enough to totally reverse sentiment. For example, Goldman Sachs, one of the first banks to call for a recession, abruptly reversed its call after President Trump announced the pause.

The S&P 500 promptly reversed the ominous crossing of its 200-day moving average. And although U.S. stocks have not reclaimed their previous highs, many foreign markets and the global equity market in aggregate have managed to do so.

Does that mean investors can breathe easy? Maybe, but I doubt it. I think the current rally reflects a giant sigh of relief from investors after months of holding their collective breath. I also think it won’t be the last time investors find themselves waiting to exhale this year.

In an environment where sentiment can change from a single post on Truth Social, uncertainty and volatility should be expected to continue, and investors should be wary of getting whipsawed by the market’s turbulence.

Overreacting to every breaking news headline helps as much as thinking we can predict what the markets will do next. We’re better off focusing on what we can actually control, like staying calm and controlling our breathing!

For us, that means paying attention to economic and market data instead of who is “tweeting” what at whom. We’ll share more of what we’re seeing in our next quarterly update.

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Victor K. Lai, CFA