Market Musings: A Tale of Two Weeks

Hello everyone, Joe Tigay here with some thoughts on our rollercoaster market.

From Optimism to Caution in Seven Days

Just last Monday, we were riding high! The markets were soaring, optimism abounded, and I found myself reminding everyone to keep a level head. Remember that story I shared about the farmer whose horse ran away? When his neighbors called it bad luck, he simply replied, “Good luck, bad luck, who knows?” Then the horse returned with wild horses, his son broke his leg taming one (missing the draft), and on the story went – each “disaster” becoming a blessing, each “blessing” hiding a challenge.

Well, wouldn’t you know it? This week feels like the complete opposite:

• Markets are trending lower
• Volatility is climbing higher
• Investor anxiety is palpable in conversations

But perhaps, just like last week, things aren’t exactly as they seem.

The Moody’s Downgrade: A Market Game-Changer

The immediate catalyst? Moody’s downgraded the United States’ long-term issuer and senior unsecured ratings from Aaa to Aa1 on Friday. This marks the first time the US has lost its premier credit rating from Moody’s, citing:

• Increasing government debt
• Rising interest expenses
• Concerns about fiscal governance

Not exactly the news we wanted heading into the weekend!

History Repeating? Previous Downgrade Lessons

This isn’t our first downgrade rodeo, though. We’ve seen this movie twice before:

• August 2011: S&P downgraded US credit rating
• August 2023: Fitch took similar action

Both times, we witnessed:

• Spike in market volatility
• Challenging markets for the following quarter

Here’s what I keep reminding clients: there’s always more going on than just interest rates – we’re dealing with an interconnected global economy with countless moving parts.

The reasoning behind the downgrade – increasing US spending and what Moody’s calls a “careless interest rate policy” – suggests we might be headed for:

• More government spending
• Lower interest rates
• Potentially higher inflation

If that prediction holds true, we’ll need to position portfolios accordingly.

Immediate Market Reactions

The immediate effects were predictable:

• Wall Street futures declined
• The dollar weakened
• US Treasury yields jumped up

Those higher bond yields make fixed-income investments more attractive than equities for many investors – creating a natural headwind for stocks.

Global Market Impact

Asia

• Most Asian markets started Monday in the red
• MSCI Asia ex Japan index declining
• Ongoing geopolitical tensions adding pressure

Safe Haven Assets

• Gold prices climbing as investors seek safety
• Oil prices remaining relatively stable

US-China Relations: The Elephant in the Room

Regarding US-China trade:

• Recent agreement for a 90-day pause on tariff implementations
• Some tariff reductions announced
• Uncertainty continues to linger
• Impact of past tariffs still felt throughout supply chains

Economic Indicators Flashing Mixed Signals

Recent economic data hasn’t provided much clarity either:

• Housing starts and building permits missed estimates in April
• Consumer sentiment declined in May
• Inflation data remains a key concern for everyone

The Farmer’s Wisdom: Keeping Perspective

But here’s where I circle back to our farmer: Good luck, bad luck, who knows?

Last week’s optimism might have been overblown, just as this week’s pessimism might be. Markets fluctuate – that’s their nature:

• Monday’s disaster could be Friday’s opportunity
• Clear sailing can quickly turn into unexpected storms
• Short-term volatility often masks longer-term trends

The Path Forward

The wisest approach remains the same:

• Stay diversified
• Maintain perspective
• Remember that market movements rarely tell the whole story in a single day or week
• Focus on your long-term financial goals
• Don’t let emotions drive investment decisions

So as we navigate these choppy waters together, I’ll be watching closely and keeping you updated. Because sometimes when things look their worst, they’re actually about to turn around. And sometimes when everything seems perfect, it’s time to be most cautious.

Until next time, Joe Tigay