This week, statements from the president and his treasury secretary indicating a possible thaw in relations with China triggered a bout of FOMO among traders. Markets gained more than 6 percent for the week on a hope and a prayer. Was it justified?

 

On Monday, investors woke up to President Trump calling Fed Chair Jerome Powell "a major loser." That triggered fears that Trump was on the verge of dismissing the head of the U.S. central bank. Markets appeared to be once again rolling over. The stock market cratered.

 

By the end of the day, markets were off by more than 2 percent. It looked as if stocks were ready to roll over and at least re-test if not break the recent lows. Since the U.S. relationship with China was also worsening and with no other tariffs deals insight, traders were positioned for further declines on Tuesday.

 

However, cooler heads prevailed within the Oval Office. Treasury Secretary Scott Bessent and Commerce Chief Howard Lutnick, both Wall Street pros, intervened and worked to convince the president to tamp down the rhetoric. The last thing the administration needs right now is more turmoil in financial markets, they argued. Lo and behold, by Tuesday morning the president announced that he had "no intention of firing" Powell. A day later both Bessent and Trump changed their tune over sticking it to China.

 

Last week I wrote that "I believe there is a concerted effort by the administration, after the major meltdown of two weeks ago, to provide a continuous stream of positive, short-term narratives on deals they are negotiating to support markets." We saw that this week.

 

By mid-week, Trump assured the markets that the tariffs on China would "come down substantially," and his negotiations with China would be "very nice." Secretary Bessent chimed in. He expected a de-escalation in the trade war with China, which he said was unsustainable. Both men claimed that talks were ongoing with the Chinese.

 

I noticed a lot of "may do this and may do that" but no "we will do this" in their conversations. To me, the flow of positive statements was an obvious ploy to talk markets higher and it worked. The war of words with China, however, plays both ways.

 

China's Ministry of Commerce released a statement denying talks were being held. "At present, there are absolutely no negotiations on the economy and trade between China and the U.S." The Chinese authorities insisted that before substantive talks can take place, U.S. tariffs must be rolled back. And yet, China is considering exempting tariffs on some U.S. goods shortly.

 

As this drama unfolds, the markets are betting Trump will roll back his tariff war and that his bark is worse than his bite. In addition, many think that as Trump continues to pressure Powell to lower interest rates, at some point he will if the economy falters.

 

Despite the headline risk, corporate earnings are better than expected although only 34 percent of the S&P 500 have reported so far. Google, the first of the Magnificent Seven to report beat on earnings and sales, which heartened tech investors. The remaining mega-cap companies are scheduled to report this coming week.

 

Financial markets continue to be held hostage by the headlines. Over the last two weeks, the president has softened his stance on the tariff front. The 90-day reprieve on reciprocal tariffs and the intention to exempt some U.S. sectors from the worst fallout have relieved investors of their worst fears. A soon-to-be-announced tariff deal with India should also help sentiment.

 

Do the recent stock market gains indicate that we are out of the woods? Remember that the biggest rallies happen during bear markets and some of these rebounds can be breathtaking. The S&P 500 Index had eleven 10 percent rallies during the Financial Crisis and still lost 57 percent over a year and a half. At the turn of this century, during the Dot.Com bubble, the same index chalked up seven rallies that averaged 14 percent but still lost 49 percent over two and a half years.

 

The S&P 500 Index has gained roughly 7 percent this week. Compare that to a 9 percent return per year, which is the long-term average for the S&P 500, so these returns over a short period of time are astounding. And almost every time these bounces occur, investors convince themselves that the bottom is in only to be handed their heads in subsequent downturns.

 

At this point, there is simply too much uncertainty ahead for me to call an "all clear" in the markets. We could see a bit more upside into the beginning of May provided earnings continue to come in better than expected. But I would need to see another 200 points tacked onto the S&P before changing my tune. In the meantime, if you have discovered that your risk tolerance is not as accurate as you thought, take the time to adjust your investments to a more defensive stance.

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

What to do in times of uncertainty?

 

Trillions of dollars in hard-earning savings have been erased from retirement accounts in what seems to be a blink of an eye. One year's worth of savings gone in a matter of weeks. The decision to sell, buy, or hold has never been more difficult.

 

In the private sector, more than 50 percent of Americans own stocks in their tax-deferred retirement accounts. That total has been increasing, thanks to the market gains since the pandemic and new federal and state rules that require more companies to offer employees access to 401(k)s through the workplace. Congress has also authorized a new rule that goes into effect this year requiring new 401(k) plans to use automatic enrollment.

 

The problem, however, with most tax-deferred plans is how to manage them. Unlike pension funds, which are managed by professionals, individual investors are on their own. That works well during bull markets where you can set it and forget, but in times like these many realize they are out of their depth.

 

Through the years, I have advised many readers to hire a registered investment adviser, especially for those nearing retirement age. And yet, there are still savers who resist hiring a professional money management firm. I am aware that many who prefer to handle their own investments read my columns religiously, however, that is no substitute for active management. 

 

Over the past few weeks, I have fielded many calls and emails like the one above. Readers want to know how and what to do with their investments. My first bit of advice is don't panic. Second, stop checking your account every day. The more you lose, the more the temptation to sell everything becomes to stop the emotional pain of steep losses.  The rest depends on your risk tolerance and age.

 

I asked my former colleague, Scott Little, an investment advisor at Berkshire Money Management, what he is telling his clients. Here is what he is saying.

 

 "One thing holds true for most people. None are going to be using all their money all at once. A retiree may live 20, 30, or even 40 years in retirement, using their savings gradually along the way. Someone in a new career may have 30-40 years to feed their investments before they begin needing their investments to begin feeding them. Even a parent saving for college may have years before substantial funds are needed to pay tuition."

 

That is sage advice. If you are five years or more away from retirement, hold fast unless you can't sleep at night. In which case, it is an indication that you are invested too heavily in one asset class, like stocks. Diversification occurs when you are invested in several asset classes outside of stocks in areas such as bonds and commodities. You can also be diversified by investing some money overseas as opposed to putting all your eggs in U.S. equity.

 

And speaking of those U.S. equity eggs, thanks to the overconcentration by both mutual funds and exchange-traded equity funds in a small group of mega-stocks called the Magnificent Seven, diversification among equity holdings is practically non-existent. And unfortunately, the Mag 7 is getting hit the hardest in this decline.

 

For those comfortable taking on more risk, especially if you are young, middle-aged, or even if retirement is closing in on you. Most of you are still in the accumulation stage of retirement planning. Downturns like this are a real opportunity. The contribution process in employer-sponsored accounts is a perfect vehicle for dollar-cost averaging. Since most contributions are made monthly, gradually increasing your contributions while increasing your allocation to equity makes sense. History shows that downturns like this have been the best opportunities to increase wealth.

 

I recognize that not all of us have the risk appetite to buy stocks ''when the blood is running in the streets." In that case, rebalance your holdings into more defensive stocks like utilities or dividend-paying securities as well as more fixed income.  

 

What if you are retired? Many retirees' greatest fear is that the markets will continue to decline. The worry is that with no income coming in at some point, your money will run out. I knew several retired investors who sold at the bottom during the Financial Crisis of 2008-2009, many on the advice of their brokers. It was the worst thing they could have done. For those who did, It required almost five years to recoup those losses.

 

Rather than panic, devise a plan instead. For example, a plan of action might be to keep a year's worth of cash out of the market, says Scott Little. While the downturn continues, spend down the cash and allow your more growth-oriented investments time to recover. As markets become less volatile over time, use that opportunity to replenish your cash and prepare for the next year. You might also want to reexamine your risk profile. The best way to do that is with a third party, either an advisor or a financial planner.

 

Retirement accounts by their nature are long-term investments. At the same time, investing in stocks is a volatile proposition but the risk-reward ratio is worth it. Stocks will have periods where you can expect to see 20 percent,  30 percent, even 40 percent declines. And yet the equity markets have always come back. The trick is to stay invested.  

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

On Thursday, investors hoped that Fed Chair Jerome Powell, speaking in Chicago at the Economic Club, would assure markets that he would backstop any downside from President Trump's policies. They were disappointed.

 

Even worse, he said, "The level of tariff increases announced so far is significantly larger than anticipated, and the same is likely to be true of the economic effects, which will include higher inflation and slower growth."

 

The fact that the leader of the world's most powerful central bank seemed to confirm the worst fears of investors triggered another $1 trillion sell-off in equity markets. The president quickly posted his displeasure at the central banker's comments on social media stating that "Powell's termination cannot come fast enough!"

 

All week, traders monitored every word coming out of the White House. Their algo programs immediately translated any news into buy and sell programs. That vaulted markets up or down in seconds with billions of dollars riding on words like "maybe," "positive," "unhappy," etc.

 

The typical retail investor is no match for this kind of volatile trading. Those who try are chopped up in pieces. Adding to the tariff tensions, the first quarter earnings season is underway. Just about every analyst is expecting earnings estimates to go lower and many companies to pull yearly guidance.

 

While the big banks reported good earnings, the number one market stock, AI semiconductor darling, Nvidia, surprised the market by announcing a $5 billion charge to income due to the government's future restriction of its popular H20 chip sales to China. That sent the stock price of Nvidia down by 10 percent overnight.

 

At the same time, the Trump administration increased China tariffs again to 245 percent. It also revealed that it is negotiating with 70 countries to disallow China to transship its goods to the United States. None of that seemed to phase Chinese internet stocks which gained more than 1 percent on the news.

 

Overall, market participants have still not given up their buy-the-dip mentality even though the markets' fundamentals and the economy are steadily deteriorating. The market trades at a market multiple of 23 times earnings right now with earnings for the year forecasted to rise by 10 percent.

 

If economists and the Fed are right, and the economy slows while inflation rises, does this kind of valuation make sense? If we experience a two-quarter recession this year, history tells us that a mid-teens earnings ratio would be appropriate. If so, we have not seen a decline in the lows in this market.

 

Investors, however, are hoping that at any moment, the White House will announce breakthrough deals with several countries. I believe there is a concerted effort by the administration, after the major meltdown of two weeks ago, to provide a continuous stream of positive, short-term narratives on deals they are negotiating to support markets. This week, Japan topped the list of "positive" meetings trumpeted on social media, while the lack of progress on the European front was not mentioned.

 

One of the only places that investors have been able to see gains is in gold and silver mining stocks. As readers know, I have been positive in this area for months, but I would caution those with a bout of FOMO to resist the temptation to chase these investments right now. This is a crowded trade in need of a serious pull-back before considering new purchases.    

 

Where does that leave us in the overall markets? Hoping for a breakthrough is not an investment strategy, nor is waiting for another 9 percent one-day market spike. We are all Trump-dependent and will continue to be. The longer these tariff negotiations take, the lower the markets will go.

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

You may have weathered the Financial Crisis and the COVID-19 pandemic sell-off, some may even remember the Dot.Com boom and bust, but this time around feels different. That's because it is.

 

In my entire career, I have never seen the stock market move 8.3 percent in 34 minutes on a rumor. That is what happened a few days back. To put that in perspective, the S&P 500 Index gains in minutes an entire year's performance. The following day it gave back half of that. Sure, we can blame these moves on computer-driven trading, algorithms, options, and the like but it doesn't change what happened and could easily happen again. 

 

If you feel the markets over the last few months are more akin to a roulette wheel in Las Vegas, you wouldn't be far wrong. In an atmosphere of radical uncertainty, daily turns in stocks and bonds become random events like a Lotto game.

 

Most market-moving events can be assigned a numerical probability to a set of outcomes which could then be calculated and priced. The Dot.Com era comes to mind. Valuations on some stocks were so high that their prices could not be justified.

 

Uncertainty enters the picture when we cannot assign a number to the probability of an outcome. It can still be modeled however by using history, similar events, stress tests, etc. We call them educated guesses. The pandemic falls into this category, although not at first. The race for vaccines, enforced isolation, and masking-up to slow the spread were all elements of educated guesswork. 

 

Today we live in a world where we aren't even sure what the outcomes are, or any idea of what probability to assign to each one. "Radical uncertainty concerns events whose determinants are insufficiently understood for probabilities to be known or forecasting possible." That was the conclusion of John Kay and Mervyn King in 2020 in their book "Radical Uncertainty: Decision-making Beyond the Numbers."

 

They argued that in certain instances there exists a deeper kind of uncertainty for which historical data provides no useful guidance to future outcomes. Fast-forward to today. Most people recognize that a massive change in our economic and political system is underway.

 

The tariff wars are but one element of this upheaval. In a world where tariffs can be raised by more than 100 percent, they are without precedent in the modern world. In addition, the unpredictability created when tariffs are announced, and then changed, in some cases several times, are examples of what we see as a world gone amuck.

 

Markets behave differently under these circumstances.  Volatility, which usually occurs infrequently, becomes a permanent and daily feature of financial markets. As a result, investors and traders insist on a higher premium for the risks they can't even identify. That, in turn, drives valuations lower, while cash increases as fewer investors are willing to chance buying into this volatility.

 

Now that you know how markets have changed, next week I will examine, how you should navigate through these trying times based on your age and risk tolerance.   

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

This week, the stock markets had one of their largest single-day rallies since 2012, after President Trump suddenly put some of his tariffs on hold for 90 days. He then gave back half of it the following day. Investors wonder if this was a bear market bounce or if it could mean something more.

 

Media sources are crediting the market melt-up to various factors. Some believe Trump decided to soften his stance on tariffs after spending the weekend huddled with his U.S. Treasury Secretary Scott Bessent. Bessent, who the business community believes is a voice of reason in a room full of tariff advocates, had urged the president to pause his reciprocal tariff deadline. He believes foreign nations, given more time, could come to the negotiating table with even better deals benefiting the U.S.

 

He may have a point since few of our trading partners understand the math behind these reciprocal tariffs. Are they about fentanyl, existing tariffs, hidden taxes and other barriers to American imports, their specific trade deficit with the U.S., or all the above? If it is only about reciprocal tariffs, then reducing one's tariff (as Vietnam already offered to do) is simple.

 

It is a different kettle of fish if, instead, Trump is demanding a total reduction of each country's trade deficit with America. That could involve passing legislation to reduce value-added taxes in some cases. In others, it might require far-reaching legislation to undo protectionist measures defending domestic industries for many countries. That would involve developing a consensus among several political parties that share power in governments. It may even require, in some instances, a referendum requiring a popular vote.

 

In any case, before this pause, a growing number of Wall Street research houses were not only ratcheting down their targets for the S&P 500 Index but also raising the probability that Trump's tariff policies could cause a recession this year.

 

Some believe the president was forced to announce a pause in the tariff schedule. Bond traders believed the fixed-income market in the middle of the week was coming unglued. On Wednesday night, the prices of U.S. Treasury bonds plummeted as foreign investors, especially in Japan, were dumping their holdings while the U.S. dollar plummeted.

 

Determining why treasury bonds, a haven in times of distress, experienced such sharp price declines is difficult at best. Who were the sellers? We know China is the second-largest holder of U.S. Treasury bonds after Japan. We also know that the only exception to Trump's reciprocal tariff pause was China. At this point our tariffs on China total 145 percent. China, on the other hand, has moved its U.S. tariff rate to 125 percent.

 

It could be that China is now reducing its holdings of our sovereign debt in response to the U.S. tariff threat. And this China/U.S. tariff war may continue. Charles Gasparino of Fox Business posted on X that the Trump administration is moving toward a possible delisting of Chinese public company shares on U.S. exchanges. If so, Chinese stocks listed here, are ignoring that possibility.

 

A better bet could be that the so-called "yen carry trade" may be unraveling. For decades, traders would borrow yen, exchange yen for dollars, and then invest those dollars into assets that could give them a better return (like U.S. stocks). However, the Japanese stock market has declined along with U.S. markets, while the yen has strengthened considerably against the dollar over the last few weeks. Some clients of large global financial institutions trying to unwind their yen carry trade could be in trouble.

 

How all these variables play out in the stock market is like putting together a jigsaw puzzle with missing pieces. Investors are so focused on this tariff issue that good news, like the cooler-than-expected data from both the Consumer Price Index and Producer Price Index, were largely ignored. So too was the approval of a budget plan in the House that reflects the president's agenda.

 

After this week's monumental bounce, some hopeful bulls believe the bottom is in. Others say that the extraordinary bounce in the averages is a classic sign of a bear market. They point out that if history is any guide, some of the biggest upswings in stocks occur in bear markets. If so, a 10-15 percent spike in the averages could happen at any moment depending on the president's next tweet on Truth Social. To me, until we see a successful conclusion to the tariff issue, which could take several months, I believe any rally would be an ideal time to trim portfolios and get more defensive.  

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.