After experiencing the two worst weeks in the last two years, stocks rebounded sharply this week, with the Dow posting its best week since late 2016 and the S&P 500 having its best week since 2013. There was no specific news that drove the rebound, but the fear over higher interest rates and inflation appears to have subsided for the time being. Interestingly, interest rates continued to move higher and the 10-year Treasury is now at a 4-year high. To me, this suggests market participants have realized interest rates are still very low historically and unlikely to reach levels in the intermediate term that will put downward pressure on stock valuations. While this was a good week, it’s reasonable to expect that we will continue to see increased volatility going forward. Volatility was historically low for the prior two years and some return to a more normal level seems likely. For the week, the Dow and the S&P 500 increased 4.3%. Both indices have been up for six straight days and have now recovered around 60% of the losses from the prior two weeks. Markets will be closed Monday in observance of President’s Day.
The Commerce Department today announced recommendations for tariffs and/or quotas on imported steel and aluminum. The US steel companies surged today, with US Steel gaining ~15% on the news. Companies such as Whirlpool and others that are large users of steel and aluminum sold off on the news. A final decision is expected from the Trump administration in April. Tariffs and quotas are a de facto tax on consumers and businesses as they increase the cost of the underlying product. This follows recently announced tariffs on washing machines and solar panels. One of my biggest concerns about the Trump economic plan is tariffs and whether or not they could lead to a trade war. There are many examples of the US being on the wrong side of tariffs and unfair trade, but we have always stood for freer markets and no tariffs. This allows companies to compete on price and quality without significant government friction. It also keeps prices as low as possible for American consumers. Global trade is critical to everyone’s economic success and I’m hoping this will be the last of the tariffs announced. I believe we should be promoting open, free and fair trade, not putting up barriers in our own market. Read More
Oil increased 4.0% this week to close at $61.62/barrel. The yield on the 10-yr Treasury moved slightly higher, to 2.87% from 2.85% last week. The average rate on a 30-yr fixed rate mortgage moved higher again to 4.38% from 4.32% a week ago. This is the highest level for mortgage rates in almost four years.