Closing Thoughts for the Week

All of the traditional warning signals are starting to flash now. High yield spreads are beginning to blow up and traditional risk-on/risk-off has fully returned. I keep hearing the phrase “short-term pain, long-term gain” being used, but I don’t think that’s necessarily the case. If you’re looking for a bull case in all of this, it could be a massive tax cut plan down the road.

Tariffs prove to be a continued source of volatility for the markets. With just days until Trump’s “liberation day” on April 2nd, the market appears willing to keep selling off any notion of new tariffs or escalation in the existing trade war. Overall, I believe we’re still looking at risk-off conditions. The shorter-term has become more difficult to get a handle on because the White House’s mood on trade seems to shift every day or two.

The markets are starting to shed their risk-off sentiment and become at least more neutral in the near-term. The movement, however, is benefiting cyclicals, not growth. The economic data showed modest improvements last week. The Fed held rates steady as expected, choosing to continue taking a wait-and-see approach. The decision to slow QT suggests they believe that the economy is going to need more liquidity.