Tariffs begin taking effect this week, and it has been automakers who are in the crosshairs. The first tariffs come online April 1, and many automakers are warning of significantly increased costs to consumers and substantial time and cash to retool their supply chains.
Price pressures have remained stubborn. Last week, we saw the Fed’s preferred measure of inflation (personal consumption expenditures) post slightly higher than expected. Coupled with their commentary from the week before, it appears that the Fed may be unable to offer relief to investors any time soon. If stagflation sets in, it may be an even longer time before central banks are able to come to the aid of investors.
We see more important economic data this week, including job openings, manufacturing and services health, and the unemployment rate. All are important, but it does appear that investors now see a recession as much more likely. Earnings may serve to change market sentiment, but those are still two weeks away and CEOs are very pessimistic, with almost half believing a recession is likely within the next 12 months.
In short, the Fed has been sidelined by stagflation fears, the economic data is not good, and tariffs are sowing doubt for US growth. A very good earnings season may salvage the outlook, but that seems unlikely given the sentiment of CEOs. For investors with goals to achieve in the next few years, I believe this is a time for caution.
Chart of the Week
One of the common selling points I here about cryptocurrency — specifically Bitcoin — is that it offers diversification benefits. Because different forces push it around, it is argued, it can help you reduce risk in your portfolio when held with US stocks. Unfortunately, I haven’t seen that argument work out so far. As the chart shows, Bitcoin has moved up with stocks (specifically US technology stocks), and moved down with stocks as well. It is, in that sense, just like owning US tech stocks, but with more volatility and bouts of 10% 1-day losses (or gains).
This isn’t to say you shouldn’t own it in your portfolio, rather (1) much of the analysis we read on the internet about crypto is easily disproven with a simple look at the data, and (2) if you are going to own it, understand exactly why you own it!
This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from Directional Advisors to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own financial professionals, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.