Where to now?

Suddenly, the garden looks quite rosy, as US stock markets have regained 10% of the losses from the lows of a few weeks ago. Earnings season seems to be progressing well. Alphabet shares rose after hours last night as they exceeded expectations in both revenues and earnings. So far, none of the MAG 7 have had major disappointments. Trump is making conciliatory noises about tariffs, and the desire to be rid of Powell was a complete misunderstanding. This week, US macro data was mildly encouraging. New orders for durable goods jumped 9.2% in March, surpassing the consensus expected rise of 2.0%. Those who unpick the report will find things to concern themselves with.

The dollar rallied this week, and the rout in the 10-year US treasury seems to have abated as yields have retreated from the peak of 4.5%, although they are still above where they were a few weeks ago. Monthly job claims data were in line with expectations, and the flash composite PMI came in just above 51, indicating that the US economy continues to expand. The good news keeps coming as several Federal Reserve officials publicly mused about possibly cutting interest rates in the near future.  As a result, the S&P 500 is now back at the top of its trading range, 5500.

What happens next? Does the S&P 500 break through this range, or do we remain in the trading range of 5000 to 5500? Or do concerns about the recent uncertainty hasten the U.S. economy toward a recession, albeit probably a mild one that could see the S&P 500 test around 4500 for the reasons I have described previously? A lot will depend on the economic data coming out in the next few weeks, as we see more of what the recent toing and froing has done to CEO confidence in forward planning. To illustrate this point, the latest Fed Beige Book survey, released on Wednesday, can be summarised as  “Economic activity was little changed since the previous report, but uncertainty around international trade policy was mentioned many times across the report. In my personal view, the volatility of the past few weeks may be behind us, but the picture remains unclear for the US economy. The risk-reward is back to 6000, a 10% upside from here, or more signs of an economic slowdown, and we risk going back to 4500.

I guess the thing to remember at these times, is not to forget that the volatility brings opportunities, but don’t get too greedy. When all around feels awful, things are never as bad as they seem, and enjoy the good times.