By: Shiva Sudanagunta
Despite substantial increases in volatility this year, investor sentiment still seems to remain high. At this point in time, some of the most watched topics include a 17-year low on the unemployment rate, an increase in wages, and more recently President Trump’s decision to impose tariffs on foreign steel and aluminum exports by 25% and 10% respectively.Early last February we saw what many believe was a correction in the markets in response to a non-farm payrolls report that indicated the U.S. had added about 200,000 jobs in January, bringing the unemployment rate close to 4.1%. The news—warmly received by President Trump as a sign of a strengthening economy—was met with panic as investors’ further fell into the assumption that the Fed would increase four times instead of the three they penciled in for 2018. After all, a seemingly “overheating” economy would push inflation rates higherSome welcomed this correction, citing a widespread belief that such high valuations were undermining fundamentals. And yet, many investors just saw the correction as an opportunity to buy the dip, leading to a quick bounce-back. Since then, the markets have entered a bout of volatility: Powell’s positive assessment of the economy in front of the House was enough to trigger a selloff.More violent was the reaction to President Trump’s declaration of a steel and aluminum tariff, which was justified on national security grounds. Specifically, Trump cited the “billions of dollars [lost] on trade with virtually every country it does business with…” as his rationale. Not surprisingly, his announcement triggered yet another selloff amidst fear of increased costs for companies; however, an announcement that the tariffs would not affect certain allies including Canada and Mexico was enough to shoot indexes back up.Needless to say, the bull market seems to be continuing its nine-year run. The question many are asking is whether this market is sustainable, and if not, how long it can run. In any case, as President Trump himself tweeted last month, the significant drops and rebounds we have seen are not exactly “normal”:
“In the 'old days,' when good news was reported, the Stock Market would go up. Today, when good news is reported, the Stock Market goes down. Big mistake, and we have so much good (great) news about the economy!”