Weekly Market Commentary Archives

Jun 16

Mitch Zacks – Weekly Market Commentary: Economy Keeps Chugging Along Despite Negative Headlines

By BayTrust Financial Weekly Market Commentary

As Headlines Remain Negative, the U.S. Economy Chugs Along

In recent weeks, I have written extensively about tariff-induced economic uncertainty. Many analysts continue to call for a recession, and this past week the World Bank projected the U.S. economy would grow just 1.4% in 2025—down from 2.8% last year. To be fair, I think concerns about rising input costs, inflation, business investment, and consumer spending are all valid and should be monitored closely in the coming months.¹

But as I write, the reality on the ground looks quite different from the gloomy outlook that tends to play out in financial media. The U.S. economy has largely been resilient, with worst-case scenarios on tariffs avoided while economic fundamentals remain stable and strong. This combination has been driving the market rally, in my view.²

An overview of recent economic data underscores my point. According to the Bureau of Labor Statistics, the U.S. economy added 139,000 jobs in May, firmly in positive territory. The unemployment rate remained unchanged at 4.2%, where it has hovered in a narrow range for over a year. This may seem unremarkable, but that’s also the point. The labor market isn’t booming or breaking—it’s steadily supporting growth.

Private Payrolls Have Grown at a Steady Pace in Recent Months

Importantly, private sector hiring continues to outpace job losses at the federal level, where government employment declined by 22,000. Wages also climbed in May, with average hourly earnings rising 0.4% month-over-month and 3.9% year-over-year. That’s comfortably above the current pace of inflation, helping to support real household income and consumer spending. It’s a key piece of data for markets, especially given concerns that rising prices would continue eroding purchasing power.

On the inflation front, recent data continues to suggest that the worst of the inflation shock is behind us. The Federal Reserve’s preferred measure, the PCE price index, rose just 2.1% year-over-year in April, putting it a mere tenth of a percentage point above the Fed’s long-run average inflation target. Some would argue that this opens the door for the Fed to resume rate cuts, which would serve as a tailwind for markets. I’m not in that camp. In my view, stocks don’t need rate cuts to do well.

I do not want to imply that the U.S. economy is firing on all cylinders, however. Retail sales, for example, were up 4.75% from a year ago but fell month-over-month in May. Consumer demand has clearly cooled from the post-pandemic surge, and forward momentum has become more uneven. Activity in the services sector, which drives most U.S. economic output, softened in May as the ISM Services PMI fell to 49.9, its first contraction in nearly a year. New orders fell, inventories declined, and pricing pressures appeared to pick up again, a combination that suggests businesses are feeling the weight of tariff uncertainty and are growing more cautious with forward planning.

The manufacturing sector also contracted for a third straight month in May, with the Manufacturing PMI registering 48.5. While some components like new orders and production showed slight improvement, others—such as inventories, exports, and employment—remained under pressure. These readings aren’t a signal of imminent collapse, but they do reinforce that certain areas of the economy are still contending with lag effects from prior shocks, policy uncertainty, and structural adjustments.

The bottom line, we are not seeing a uniform expansion across the economy, and that’s ok. It’s important for investors not to confuse economic resilience with gangbusters growth. The latter is not needed to power stocks higher.

Bottom Line for Investors

This kind of economic resilience doesn’t mean risk is lower today than it was before “Liberation Day.” As uncertainty over trade deals and future tariff actions remains high, I do not expect businesses and consumers to invest and spend confidently. The net effect could be a short or medium-term drag on growth.

At the same time, however, investors waiting for a clear, euphoric “all clear” may find themselves missing the recovery as it quietly continues. If you find yourself waiting for the next tariff plunder, inflation shock, or retracement of the stock market’s recent rally, it may be time to move on. Markets and the economy already have.

¹J.P. Morgan. June 9, 2025. https://advisor.zacksim.com/e/376582/c-outlook-jobs-report-may-2025/5t5cv8/1247316295/h/owGnC7fvD72gai2Bp4elWIlr-gFT_8pC8PvEKtYttho

²Wall Street Journal. May 2, 2025.

³Fred Economic Data. June 9, 2025. https://advisor.zacksim.com/e/376582/series-ADPWNUSNERSA-/5t5cvc/1247316295/h/owGnC7fvD72gai2Bp4elWIlr-gFT_8pC8PvEKtYttho

DISCLOSURE

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Jun 10

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Mitch Zacks – Weekly Market Commentary: As Baby Boomers Age, Will the Shift to Bonds Impact the Stock Market?

By BayTrust Financial Weekly Market Commentary

As Baby Boomers Age, Will the Shift to Bonds Impact the Stock Market?

It’s been dubbed the “Great Boomer Selloff.”

If you have not heard this term in financial publications yet, it may just be a matter of time before you encounter it. The basic idea goes something like this: baby boomers, who collectively own trillions in financial assets, are entering retirement at a rapid pace. The implication is that in retirement, this entire generation will systematically shift their portfolios away from stocks and into income-oriented strategies, like bonds. With Gen X being a smaller generation, and Millennials and Gen Z still ramping up their savings, the fear is that selling will outpace buying, causing stock prices to suffer for years.¹

Recent media coverage gives the “Great Boomer Selloff” an air of urgency. But like many forecasts connecting demographics with stock market performance, it glosses over several important realities.

The most important reality, in my view, is the surprise factor (or lack thereof). The baby boomer generation did not just start aging and retiring in large numbers last month—these shifts have been unfolding for decades. What tends to move markets are unexpected developments that add or subtract trillions from global GDP—not slow-moving, well-known changes like we’re seeing with demographics.

The other problem with the “Great Boomer Selloff” theory is that it makes incorrect assumptions about retail investor behavior, while also overstating the impact that a generation of retail investors can have on the stock market.

Let’s start with the former. The baby boomer generation spans nearly two decades, from ages 61 to 79. Will all boomers start selling stocks en masse at the same time? I highly doubt it. If there’s a net drawdown, it will likely unfold over time—not in a single, market-shaking event. Many boomers will continue to buy and hold stocks for years to come, whether it’s to generate the growth needed to span longer retirements, to continue building wealth for legacy purposes, or to generate income via dividends. In other words, it is far from assured that boomers will abandon equities as they age.

On the latter point of overstating retail investor impact, it’s important to remember that retail trading is only one part of the demand equation. Institutional investors like pension funds, endowments, sovereign wealth funds, and insurance companies are massive market participants with long investment horizons. Institutions don’t invest for 10 or even 20-year time horizons, they’re thinking much longer term. Many are also required to maintain equity exposure to meet future obligations. And this does not even factor-in the consistent demand from corporate share buybacks.

On the supply side, equity markets look different than they did when boomers were accumulating assets in the 1980s and 1990s. The number of publicly traded U.S. companies has declined significantly from more than 7,000 in the late 1990s to around 3,700 today. That’s due to several forces: fewer IPOs, a preference for staying private, a surge in mergers and acquisitions, and sustained corporate buyback programs. In short, the supply of investable equities has been shrinking. Even if demand from one generation softens slightly, there are fewer shares available to push prices lower.

Lastly, Millennials and Gen Z are increasingly participating in equity market investing. They’re investing through workplace retirement plans, brokerage platforms, and digital tools that make market access easier than ever. They may not be able to fully replace boomer demand overnight—but they don’t have to. Their growing participation is part of a longer-term transition that should help support demand over time.

Bottom Line for Investors

Demographics are important, but they’re not a massive surprise force moving the stock market. The “Great Boomer Selloff” suggests that a generation of investors is poised to shock the markets with asset allocation adjustments in their retirement years, but the theory omits the reality that markets are shaped by a wide range of forces: supply and demand, institutional behavior, investor psychology, and more.

I’ve also seen this worry play out before. The theory that shifting demographics would adversely impact the stock market has been circulating for decades, and yet the stock market trades today near all-time highs with new generations of investors participating. I don’t expect that to change as baby boomers get older.

¹Reuters. May 23, 2025. https://advisor.zacksim.com/e/376582/verwhelm-us-stocks-2025-05-23-/5t3z4m/1242320052/h/vAqtUW7H53T-HJvYhYwGMtUdOIxwhsnVolBnWOi_Qp0

DISCLOSURE
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.

Jun 02

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Mitch Zacks – Weekly Market Commentary: Bond Markets Signal Trouble Ahead. Should Investors be Worried?

By BayTrust Financial Weekly Market Commentary

Bond Markets are Jittery – Should Investors Be Too?

Auctions for 20-year U.S. Treasuries are generally a routine, straightforward event that few investors pay much attention to.

That was not the case last week.

The auction for roughly $16 billion in 20-year debt featured unusually soft demand, with investors bidding up yields past 5%, well above the approximately 4.6% average seen in recent auctions. The 20-year bond joined 30-year Treasury yields above 5%, and the 10-year also continued to inch higher, crossing 4.6%. Stocks sold off sharply on the news.¹

20-year and 30-Year U.S. Treasury Bond Yields Have Been Climbing Steadily

To be fair, these are not financial crisis-type moves in the bond markets, and there have been plenty of periods historically when yields are higher than they are now and the economy and stock market performed well. But it is correct to point out, in my view, that markets appear to be growing somewhat uncomfortable with the U.S.’s inflation and fiscal outlook.

In a past Mitch on the Markets column, I laid out three reasons why Treasury bond yields may move significantly higher:

1. Expectations for economic growth are going up, tied to expectations for pro-growth, pro-cyclical policies from the [current] administration.
2. Inflation expectations are going up, due to strong expected growth in an economy near full capacity or because of other factors, like trade policy (tariffs).
3. The bond market becomes increasingly concerned about fiscal health/sustainability, with growing deficits necessitating higher levels of bond issuance.

The concern is that yields are currently rising because of some combination of #2 and #3. The possibility of higher tariffs and higher government deficits (tied to the budget bill) aren’t helping.

Let’s start with the deficit issue. The starting point for the U.S. in 2025 is not great—the debt-to-GDP ratio is approaching a new all-time high, and the deficit relative to GDP is about 5% wider than it has historically been when the economy was at full employment. It is with this backdrop that “One, Big, Beautiful Bill” has passed the House of Representatives, which introduces tax cut extensions, new tax cuts, and spending provisions that are not fully paid for by cuts or new revenue. The implication is more annual budget deficits and additions to the national debt, which means more Treasury issuance. Yields are not likely to move lower in this scenario.

On the spending side, “One, Big, Beautiful Bill” introduces some spending cuts and measures like work requirements for Medicaid coverage, and the Department of Government Efficiency (DOGE) continues efforts to reduce government spending. But the scope of these spending cuts together is not likely to cover the cost of the tax cuts and annual government expenditures, which means shrinking the deficit is not likely. The Senate may demand more spending cuts in the bill, but the actual outcome remains to be seen. It’s understandable that bond markets are a bit wobbly in the meantime.

On the inflation side of the ledger, it is really all about whether tariffs remain in force, and for how long. In Trump’s first term, tariff threats were loud on the ‘bark’ but ultimately far more modest on the ‘bite.’ The tariffs that stuck were largely relegated to China, and corporations responded in many cases by rerouting trade through Vietnam and other intermediaries (including Mexico). U.S. markets and the economy did not feel much pain, and overall core inflation remained below 2% throughout this period.

We do not know where tariffs will end up for the wide variety of U.S. trading partners. But the baseline 10% universal tariff will arguably raise inflation at least moderately, perhaps to around 3% at the peak. Growth could also see an impact, given higher import costs and greater uncertainty. If Treasury yields go up in this case because of higher inflation and inflation expectations—without a corresponding acceleration in growth—that could trigger another correction in stocks, in my view.

Bottom Line for Investors

There’s still time. Tariffs, growing budget deficits, and sluggish economic growth are not foregone conclusions, and sharply rising bond yields aren’t either. We could see a breakthrough in trade deals, changes could be made to One, Big, Beautiful Bill to make it more budget neutral, and inflation could remain in check as the economy remains fundamentally strong. U.S. Treasury bond yields could remain in a trading range under these circumstances, and the Fed may even find cause to lower the fed funds rate and steepen the yield curve in the process.

In 2023, acute worries over too much debt and deficit spending faded as inflation came down and the economy grew, fueling the bull market in stocks and pulling in foreign investment. The door is open for this possibility in 2025, too.

¹Wall Street Journal. May 22, 2025. https://advisor.zacksim.com/e/376582/al-mess-in-washington-fcebd153/5t2vxb/1237912929/h/zpGCdFbX-oF19sjx8ZsTe4zrMB4i4WyP0yMDfChzOVI

²Fred Economic Data. May 21, 2025. https://advisor.zacksim.com/e/376582/series-DGS20-/5t2vxf/1237912929/h/zpGCdFbX-oF19sjx8ZsTe4zrMB4i4WyP0yMDfChzOVI

DISCLOSURE
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.

May 28

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Mitch Zacks – Weekly Market Commentary: How Big a Deal is the Moody’s Downgrade of U.S. Credit?

By BayTrust Financial Weekly Market Commentary

What Does the U.S. Credit Rating Downgrade Mean for Investors?

Another ratings agency has downgraded the U.S. government.

Last Friday, Moody’s became the third and final agency to strip the U.S. of its AAA credit rating, following earlier downgrades by S&P in 2011 and Fitch in 2023. Moody’s cited a persistent and widening fiscal deficit, along with the compounding effects of elevated interest costs, as the primary drivers of its decision. According to the agency, “successive U.S. administrations and Congress have failed to agree on measures to reverse the trend of large annual fiscal deficits and growing interest costs.”¹

In other words, Moody’s is telling us something we’ve already known for decades.

The reasons Fitch and S&P gave for their downgrades largely mirrored Moody’s reasoning: too much spending, too little revenue, and too little cooperation in Congress to fix the issue. Put another way, ratings agencies give us a reflection of the state of affairs, but they are by no means leading indicators. After all, as seen in the chart below, the U.S. government has only managed to run four budget surpluses in the last 50+ years. The downgrade might be news, but the issue isn’t.

Source: Federal Reserve Bank of St. Louis²

Not only do ratings changes tend to be lagging indicators, but there’s also a long history of ratings missteps over the years. Perhaps the biggest in history came from the 2001 Enron scandal, where the rating agencies didn’t downgrade the company until just days before its collapse. There’s also the fact that S&P agreed to pay a $1.5 billion penalty for failing to assess the exorbitant risks present in the subprime mortgage CDO market leading up to the 2008 Global Financial Crisis—a huge miss.

Ratings downgrades would matter greatly if they resulted in surging Treasury bond yields, i.e., if they made it more expensive for the U.S. to borrow. But that has not been the case historically. As seen in the chart below, when S&P downgraded U.S. debt in 2011, the 10-year U.S. Treasury bond yield was at roughly 2.5%. It finished the decade below 2%.

Source: Federal Reserve Bank of St. Louis³

Ultimately, bond investors aren’t focused on letter grades—they’re focused on whether they’ll get their money back, with interest. From that lens, the U.S. remains one of the most reliable borrowers in the world. What matters isn’t the absolute size of U.S. debt, but its ability to service that debt. And right now, annual federal tax revenues far exceed interest payments, underscoring our ability to never miss a debt payment. Add to that the global demand for dollar-denominated assets and the sheer scale and diversity of the U.S. economy, and it becomes clear why Treasurys still sit at the center of global finance.

Source: Federal Reserve Bank of St. Louis⁴

It is important for me to make a distinction in my argument here, however. While I think a ratings downgrade a notch lower from AAA does not have many investment implications, I do believe the long-term issue of consistent deficit spending can and will have negative economic effects if it persists.

One key concern is the crowding-out effect. When the government runs large deficits, it typically funds them by issuing more debt. As federal borrowing ramps up, it can absorb a greater share of available capital in the economy, leaving less for private-sector investment. That shift can hinder the growth of businesses, limit innovation, and reduce long-term productivity.

Additionally, as debt servicing consumes a larger slice of the federal budget, it can constrain fiscal flexibility. Dollars spent on interest payments are dollars not spent on infrastructure, education, or other areas that support long-term economic health. Over time, if this dynamic continues unchecked, it can dampen potential GDP growth and erode investor confidence in U.S. policymaking—even if default risk remains low.

Bottom Line for Investors

Investors shouldn’t view the downgrade as an urgent alarm bell. But we should also not ignore the broader message. While Moody’s isn’t telling us anything new, the ratings downgrade does reinforce a longer-term concern: persistent fiscal imbalances. If left unaddressed, this can become a drag on economic growth. The risk isn’t about an imminent inability to pay—Treasury interest payments remain well covered by tax revenues—but about the cumulative effect of rising debt and interest costs over time.

If deficits continue to widen and debt service takes up a growing share of federal resources, it could begin to crowd out productive private investment, strain fiscal flexibility, and gradually undermine the foundations of U.S. economic leadership. In that sense, the downgrade is less a shock event and more a warning sign for policymakers on the road ahead.

These are the views of the author, not the named Representative or Advisory Services Network, LLC, and should not be construed as investment advice. Neither the named Representative nor Advisory Services Network, LLC gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information.

¹Wall Street Journal. May 16, 2025. https://advisor.zacksim.com/e/376582/omy-feat1-central-banking-pos1/5t1vsr/1232662594/h/wov49SFzU8_c9KxPDfp_Fw0CxoNcRBvYYfXWNcDz-68

²Fred Economic Data. May 27, 2025. https://advisor.zacksim.com/e/376582/series-FYONGDA188S/5t1vsv/1232662594/h/wov49SFzU8_c9KxPDfp_Fw0CxoNcRBvYYfXWNcDz-68

³Fred Economic Data. May 20, 2025. https://advisor.zacksim.com/e/376582/series-DGS10-/5t1vsy/1232662594/h/wov49SFzU8_c9KxPDfp_Fw0CxoNcRBvYYfXWNcDz-68

⁴Fred Economic Data. April 30, 2025. https://advisor.zacksim.com/e/376582/series-A091RC1Q027SBEA-/5t1vt5/1232662594/h/wov49SFzU8_c9KxPDfp_Fw0CxoNcRBvYYfXWNcDz-68

DISCLOSURE
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.

Apr 29

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Mitch Zacks – Weekly Market Commentary: Categorizing A Market Selloff Can Help You Navigate It

By BayTrust Financial Weekly Market Commentary

Categorizing a Market Selloff Can Help You Navigate It

Market declines come in all shapes and sizes, but they tend to follow similar patterns over time. Corrections are short, sharp declines between -10% and -20%, while bear markets are declines greater than 20% that fall into one of three categories¹:

· Structural – These bear markets are caused by severe dislocations, typically in financial markets, and are often associated with ‘bubbles.’ The 2008 Global Financial Crisis is an example of a structural bear, which often take several years to fully recover from.

· Cyclical – These bear markets are more closely tied to the business cycle, and often coincide with a peak in profit margins, rising interest rates, elevated inflation, and/or a deceleration in economic growth.

· Event-Driven – Event-driven bear markets are triggered by an extraneous, usually unexpected shock. The Covid-19 pandemic is a perfect example of an event-driven bear market, as investors quickly anticipate immediate and elevated risks to earnings and growth.

In terms of magnitude and duration, structural bear markets tend to be the most painful. They’ve averaged about -37% declines over approximately 42 months. Cyclical and event-driven bear markets, on the other hand, average about -30% declines over generally shorter periods. Cyclical bears have lasted 25 months on average, while event-driven bears have usually spanned about 8 months with an average drawdown of -29%.

In my view, the current environment has the markings of a correction or an event-driven bear market.

The stock market appears to be very quickly pricing-in uncertainty tied to tariffs and other political factors, which has led to multiple contractions even as earnings have, to date, held up reasonably well. I’m not seeing any signs of a bubble bursting or a crisis in financial markets, which I think easily rules out a structural bear. A cyclical bear market does not seem likely either, as interest rates and inflation peaked some time ago and earnings expectations for 2025 were nicely positive throughout Q1. Higher-than-expected tariff pronouncements—with all the accompanying uncertainty—have been the wild card, which I think puts this downdraft in the event-driven category.

As seen in the table below, event-driven bear markets can sometimes have the look and feel of corrections, given the very short time frame where downside volatility is experienced. Once the downdraft is over, the forward returns are unanimously positive.

Bear Markets and Recoveries, 1929 – Present

It makes sense why the recovery from event-driven downdrafts is often quick. In many cases, the global/U.S. economy is in decent or good shape before an exogenous event takes place, meaning that it does not take quite as long for the economy to recover once the impact of the ‘event’ fades. In the current environment, if trade uncertainty suddenly fades it would be easy to envision the market taking off in response. U.S. household and corporate balance sheets are strong, the jobs market remains in strong overall shape, and credit spreads are tight. Investment-grade corporations still have relatively easy access to capital markets, and banks are also very well capitalized. This calls for patience, in my view.

Bottom Line for Investors

There is no way to know when the market will bottom. But what I can tell you, from a long reading of history, is that a sustained market rally will almost certainly take hold as the news remains bad and even gets worse. In other words, don’t wait for the breakthrough in trade.

The goal now is to ensure you’re positioned to participate in the rebound when it occurs. If this is a correction or an event-driven bear market, which I believe it is, that rebound could arrive much sooner than many anticipate.

¹Goldman Sachs. Asset Management. 2025.

DISCLOSURE
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.

Apr 22

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Mitch Zacks – Weekly Market Commentary: U.S. Treasurys React to “Liberation Day”

By BayTrust Financial Weekly Market Commentary

The Bond Markets Make a Tariff Statement

Given the flurry of tariff announcements (which are still ongoing) and elevated equity market volatility, investors may have understandably taken their eye off the U.S. bond markets. But there’s been action in U.S. Treasurys that is worth a closer look.

In the immediate days following President Trump’s April 2nd “Liberation Day” tariff announcement, Treasury bonds behaved as we’d expect them to. As stocks sold off sharply, investors poured into “risk-free” Treasury bonds, which sent bond prices higher and yields lower.¹

But then something interesting happened.

Starting on April 4th, Treasury bonds endured sustained selling pressure (with prices falling and yields rising) as stocks also fell, which added another layer of confusion to an already uncertain market environment. Given the U.S. Treasurys’ status as the world’s safe-haven asset during periods of global economic and market upheaval, one would have expected bond prices to rise as stocks fell. But the opposite started occurring. Investors were dumping Treasurys and stocks at the same time, with the 10-year Treasury yield notably jumping from 4.20% to over 4.50% within a four-day stretch. That marked its steepest increase since the 2008 financial crisis.

10-Year U.S. Treasury Bond Yields Spiked in the Wake of “Liberation Day”

One possible explanation for the sharp move in Treasury yields is rising inflation expectations. Treasurys are caught in a tug-of-war between growing recession fears (which would send yields lower) and the possibility of higher inflation due to tariffs (which would send yields higher). Perhaps inflation concerns were winning the day.

Another explanation is more technical. Institutional investors unwound complex leveraged trades en masse, such as basis trades, which rely on small price discrepancies between Treasury instruments. As yields spiked, these trades became unprofitable, forcing hedge funds to liquidate positions rapidly—which intensified the upside volatility.

The U.S. dollar also deserves a mention here. The dollar has long been the dominant reserve currency worldwide. The greenback is widely used by governments and institutions to stabilize their own currencies, manage trade flows, service debt, and prepare for unexpected economic shocks. And because global commerce is so often conducted in dollars, there’s a persistent demand to hold them—typically parked in U.S. Treasurys. In this sense, ongoing demand for U.S. dollars and Treasurys keeps yields in check.

There’s an argument that evolving trade dynamics are prompting some investors to re-evaluate the dollar’s centrality in global transactions. Central banks and sovereign investors aren’t pulling back per se, but they appear slightly more cautious when it comes to increasing their U.S. Treasury holdings. This could put upward pressure on yields over time.

Whatever the ultimate reason for the surge in 10-year Treasury bond yields, the message was clear: financial markets were not responding well to the proposed global order on trade.

Then came the 90-day pause, after which the stock market delivered one of its largest single-day rallies in history. In hitting the pause button, the worst-case scenario was taken off the table, and stocks surged. As I wrote in a Mitch on the Markets column two weeks ago, “[good news] will almost certainly trigger strong moves higher, [and] long-term investors simply cannot afford to miss these upswings.”

This brings me to a final point I’d like to make about market volatility, which is a point I’ve made many times before: remember that volatility works both ways. The very best days in the stock market often occur in close proximity to the worst days, often by less than a week. It’s basically impossible, in my view, to time the market so you only participate in the up days but avoid the down days.

The chart below zooms out and looks at the relationship between a surge in volatility and forward market returns. As readers can see, the previous instances when volatility reached extremes occurred in 2008 and in 2020. In both instances, stocks (as measured by the Russell 1000 Index) posted double-digit gains in the following six months.

Bottom Line for Investors

The recent spike in Treasury yields and unusual cross-asset selling are signs that markets are grappling with a complex mix of policy uncertainty, shifting inflation expectations, and evolving global trade dynamics. Investors should expect heightened volatility to continue in the near term, as trade policy is negotiated and news updates hit the tape.

But it’s important to remember that volatility—especially in response to political or policy-driven events—works both ways, and we have already seen how major moves in the market can prompt the administration to step-in with actions to de-escalate. There is still plenty left to learn on tariff and trade policy—but at least for now, the direction of travel appears to be away from the most punitive starting point.

DISCLOSURE
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.

Apr 15

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Mitch Zacks – Weekly Market Commentary: Avoid Sudden Moves In This Market

By BayTrust Financial Weekly Market Commentary

In last week’s Mitch on the Markets column, I offered readers a central takeaway:

“Selling out of the market today [April 5] substantially increases the chances of being whipsawed when a rally takes hold, which again, no one can know the precise timing of.

What a difference a day can make.

In the days following President Trump’s April 2nd announcement, we learned that the U.S.’s new tariff rate was projected to reach approximately 25%, which blew past worst-case scenarios and even surpassed the economically catastrophic Smoot-Hawley tariff levels of the 1930s. But by April 9th, virtually all “reciprocal tariffs” were paused for 90 days. The ‘modicum of good news’ I referenced above was actually a big positive, with the worst-case scenario of tariffs being taken off the table.

There is still the China story, however. Beijing initially responded with retaliatory tariffs of 34% on the U.S. (China is the U.S.’s third largest export market), but in the days since, tariff rates have ratcheted higher. As I write, China has raised levies on U.S. imports to 84%, and President Trump has raised the tariff rate imposed on China to 125%.

What we’re left with today is a 10% universal tariff on all imports into the U.S. and an economic stand-off between the two world’s largest economies. Which is to say, investors should not necessarily expect a durable rally from here. Volatility works both ways, and we are almost certainly not out of the woods yet.

My advice to remain calm and avoid knee-jerk reactions has not changed. This is an event-driven market, meaning that asset prices are essentially in a day-to-day cycle of assessing economic policy announcements, trade negotiations, punitive actions, deals, and/or de-escalation. There is not a secret set of tools investors can use to navigate this type of market—in my view, this is a time to unwaveringly avoid guesswork and to keep focus on owning strong companies in a diversified, long-term focused portfolio.

In other words, tune out the daily noise.

Going forward from here, I again urge investors to avoid trying to guess the next move on trade or any other economic policy. Instead, focus on the big picture. Here are three key points to consider:

1. Potential for Negotiations and Concessions

As we have seen historically and in this latest installment of President Trump’s trade policies, countries may look to offer concessions that can be trumpeted as a win for the U.S., which could result in permanent moderation of the announced tariffs. If the U.S. can secure a few significant negotiations, it could ease market anxiety and potentially put more pressure on China to make a deal.

2. Consideration of Fiscal Offsets

Revenue from 10% universal tariffs could lead the Trump administration to suggest that Congress redistribute some of these funds towards fiscal easing measures elsewhere, like tax cuts, which could help bolster sentiment, GDP growth, and offer counter-cyclical measures to avoid recession.

3. A Starting Point of Strong Underlying Economic Fundamentals

Despite the tariff shock, certain underlying economic factors remain relatively healthy. The jobs market showed the hiring accelerated in March, and the unemployment rate remains at 4.2%. Households are also in strong overall financial shape, with low debt service payments as a percent of disposable income and steadily rising wages.

Now to be fair, I do not think the impact of 10% universal tariffs, a protracted trade fight with China, and uncertainty in general will have no impact on growth, consumer spending, and other key economic fundamentals. The longer these policies remain in place, the greater the likelihood we see a downshift in growth and possibly a recession in 2025. But again, all these headwinds could go away tomorrow. There is no way to know for sure.

Bottom Line for Investors

In an event-driven market, one of the biggest risks an investor can take is overreacting to a news story. We have already seen that President Trump u-turned away from the most punitive of tariff measures on Day 1 of their implementation, so it does not make sense to anchor your sentiment—or investment decisions—to headlines and especially not to worst-case scenarios. Making investment decisions based on what positive or negative surprise might come next is not only futile, but it can also do real damage to long-term returns.

Going forward, I expect market volatility to persist. After all, there are still 10% universal tariffs in place and an ongoing economic standoff between the U.S. and China. More twists and turns are likely, which makes a disciplined, diversified approach the most effective way to navigate your way through it.

DISCLOSURE
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.

Apr 07

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Mitch Zacks – Weekly Market Commentary: Market Shock from Tariffs – How to Navigate Volatility

By BayTrust Financial Weekly Market Commentary

Late in the week, global stocks made it clear that the tariff announcement was worse-than-expected. We were looking for a roughly 10% effective tariff rate once all the details were parsed, but the actual figure appears to be closer to 20%. That’s also about double what the general market was expecting, and as I’ve written time and again, markets do not like negative surprises.

Panicked investors everywhere are trying to decipher what to do next, which makes the current environment ripe for major missteps.

These are the moments historically when investors start trying to predict what is going to happen next, and the assessments tend to skew sharply negative. In the current environment, it may mean predicting a prolonged trade war, a recession (or worse), and/or more equity market downside. It does not matter if you have been an investor for one year or for 30+ years like me—the chances of being precisely correct are very, very low.

Investors tried to make the same predictions the day after Black Monday in 1987, when the S&P 500 fell -22.61% in a single day. Ditto in 2008, when a plummeting market was accompanied by images of bankers leaving Lehman Brothers with boxes. The Covid-19 pandemic is arguably in a league of its own in this respect, too.

There are very reasonable arguments that the current shift in trade policy should fall into a different category, given the medium- to long-term implications it could have on growth, prices, and global economic order. I could write many columns fleshing out economic theories for and against tariffs, while analyzing every line item of the April 2 announcement and making projections for economic impact. This is the type of work we do at Zacks Investment Management — determining which stocks and bonds to own in portfolios, as we make earnings and interest rate forecasts.

But this is not the type of analysis I think investors should be doing when determining whether or not to stay invested.

Even if we knew for sure the U.S. was either in—or heading for—a recession, it would not necessarily make it a prudent strategy to get out of stocks. The fundamental problem with this decision is that investors cannot know when to get back in, which is a dilemma that’s complicated further by the market’s tendency to rally when the news is still dismal and uncertain.

Think back to the Covid-19 pandemic. These were the biggest S&P 500 selloffs in March 2020:

March 6, 2020: -7.6%
March 11, 2020: -9.51%
March 13, 2020: -11.98%

Some may find it difficult to fathom/remember such steep declines one after the other, but that’s what the market did. If you told me I could travel back in time to March 1, 2020—armed with knowledge that the market was about to experience severe ‘short-term pain’—my position would be the same: I still wouldn’t sell.

That’s because throughout history, the news cycle lags the market by many, many months. When stocks started to surge in 2020, the unemployment rate was double digits, and the vaccine was nine months away from being approved. There were hardly any green shoots to be found anywhere.

And that’s my main point: selling out of the market today substantially increases the chances of being whipsawed when a rally takes hold, which again, no one can know the precise timing of.

In the current environment, the setup is that any modicum of good news on trade will factor as a positive surprise for markets going forward, which will almost certainly trigger strong moves higher. Long-term investors simply cannot afford to miss these upswings. If you put $10,000 into the S&P 500 on January 1, 1980, and stayed invested through March 31, 2025, you’d have $1,635,083.

But if you missed just the five best days in the market over that period, your investment would have grown to just $1,013,782.

That’s over half a million dollars for missing the best five days, which also meant staying invested in the days following the 1987 Black Monday crash, and throughout the Tech Bubble, 2008 Global Financial Crisis, and the Covid-19 pandemic. That’s a very hard series of choices for investors to make, but throughout history it has paid off. I’m convinced it will again.

Bottom Line for Investors

The market’s response to the tariff announcements was unsettling, and I empathize with the challenges and stress such sharp declines can cause for investors. The emotional dimension of market declines can give many investors the urge to act.

But as history has shown, the best course of action is often to resist this urge. Markets are unpredictable day to day—with about a 50/50 chance of gains or losses—but over longer periods, the odds shift dramatically in the investor’s favor. Since 1937, being invested in U.S. stocks for five years has meant earning positive returns 93% of the time. Over 10 years, it’s 97.4%.

Remaining invested during turbulent times is not easy, but it has been—and will continue to be, in my view—the single most reliable strategy for building wealth over time. The power of compounding works best when left alone.

¹ Wall Street Journal. March 15, 2025. https://advisor.zacksim.com/e/376582/d-economy-feat5-consumers-pos2/5stkd8/1189097503/h/cEzFYzByPVvCyinLeWRQSlQVBjbe7jfV2huGBrJhdqY

² Fred Economic Data. February 21, 2025. https://advisor.zacksim.com/e/376582/series-MICH-/5stkdc/1189097503/h/cEzFYzByPVvCyinLeWRQSlQVBjbe7jfV2huGBrJhdqY

³ Google Trends. 2025.

DISCLOSURE

Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.

Mar 04

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Mitch Zacks – Weekly Market Commentary: Investors Should Start Looking Beyond the Fed

By BayTrust Financial Weekly Market Commentary

Are You Overexposed to Growth Stocks?

Most investors are aware of the outsized impact growth stocks have had on total returns in the U.S. stock market, at least for the past couple of years. In 2024, the mega-cap technology companies often referred to as AI “hyper-scalers” accounted for 41% of the S&P 500’s total return. And perhaps not surprisingly, the two best performing sectors last year were Communications Services and Technology, where many growth stocks can be found.

Growth stocks have no doubt done well. But there is also a narrative that ‘growth’ is the only category that matters, especially given the view that we could be in the early stages of an AI-driven economic transformation.¹

I’m not writing to say this is wrong, or that growth stocks’ momentum is coming to an end soon. My goal in this week’s column is to remind investors that a pure growth mindset can introduce risk in an investment portfolio—whether it’s from over-allocating to growth stocks or underweighting other attractive categories, like value stocks.

2024 offers a useful case study for the argument I’m making. As mentioned, Technology stocks led the way. But we also saw improving performance outside of the Big Tech category, with the median stock in the index returning +12% and leadership changing hands throughout the year. In the second half of the year specifically, value stocks and growth stocks performed roughly in-line with each other, as value staged a strong rally starting in July. A diversified portfolio could have captured this upside with less overall risk.

Investors who simply own an index may think they’re getting this same level of diversification, but they may actually have greater exposure to growth stocks than they’re aware of. Case-in-point: growth stocks made up over 35% of the S&P 500 Index as of the end of last year, which is substantially above the historical average of 24%.

Consider that owning the S&P 500 today could mean over-allocating to growth stocks and under-allocating to value stocks, which means having a portfolio overweight to stocks that trade at high multiples. Value stocks, by contrast, trade at relatively attractive levels today, and are far below their long-term median valuation. I estimate that value stocks would need to rise by some 40% just to get back to this historical valuation.

While past performance doesn’t guarantee future results, it’s noteworthy that the last time the valuation disparity between the Russell Growth and Russell Value indexes was as extreme—back in December 2000—value stocks went on to substantially outperform growth stocks over the following one, three, and five years. High-growth stock prices might eventually steer investors toward more reasonably priced options and expand the market focus beyond just the largest firms.

There’s also an earnings case for looking beyond growth. In aggregate, pretax corporate profit margins are near record levels, and the “non-Magnificent Seven” stocks in the S&P 500 are poised to see double-digit earnings growth for the first time in four years. While the Technology sector is expected to see strong double-digit earnings growth as well, Tech earnings growth is poised to decelerate in 2025 while other sectors in the S&P 500 could see accelerating earnings growth. Investors tend to prefer the latter.

Bottom Line for Investors

Growth stocks have undeniably driven recent market momentum, and have commanded leadership over value for much of the past decade. But over-committing to the growth theme not only increases risk in a portfolio, in my view, it also misses out on other areas of the market that trade at attractive valuations and could see accelerating earnings growth this year.

Growth stocks may grab the headlines, but emerging opportunities in other sectors are equally compelling. As market valuations shift and uncertainty rises, investors with diversified portfolios—like we manage here at Zacks Investment Management—can better position themselves for tomorrow’s gains.

¹Black Rock. 2025. https://advisor.zacksim.com/e/376582/stocks-underweight-and-unaware/5sndxr/1161199135/h/VLtq2YXm2Rfa8n9y687OZE2OFHPBjPenlz9ruOK-XeA

DISCLOSURE
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.

Feb 11

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Mitch Zacks – Weekly Market Commentary: The Current Equity Risk Premium is Zero. Should Investors Ditch Stocks?

By BayTrust Financial Weekly Market Commentary

Stocks and Bonds Offer Similar Yields. Does That Make Stocks Too Risky?

As I write, the S&P 500 trades at roughly 22x projected 2025 earnings, and the 10-year U.S. Treasury bond yields roughly 4.5%. That makes the earnings yields on stocks and bonds basically the same.

For clarification, the earnings yield on stocks is derived by dividing the stock market’s expected earnings by its price, which currently equals about 4.5%. When you compare this earnings yield with current bond yields, that gives you the equity risk premium, which theoretically tells investors how much extra reward stocks should offer over bonds.¹

As readers can see, that reward is essentially zero today—which also marks the first time we’ve seen the equity risk premium this low since the tech bubble burst.

It is logical to assume that the lower the equity risk premium, the weaker the case for owning stocks versus bonds. After all, according to this metric, investors are not being compensated at all for taking the additional risk of owning stocks over Treasurys. There’s also the case of the late 1990s, when the equity risk premium turned negative and a bear market followed.

In my view, there’s a very reasonable risk argument to be made here about the stock-bond decision. But where the argument starts to fall apart, in my view, is in assuming that a low or even slightly negative equity risk premium tells us anything about future returns. When we look back on history at the relationship between the equity risk premium and forward 12- or even 24-month returns on the S&P 500, the case for correlation fizzles. And there’s essentially no argument for causation.

In 1996, the equity risk premium fell below zero and stayed negative basically until the bear market started in early 2000 (the equity risk premium turned positive for a short time in 1998 with the market correction). Investors could have used this metric to get out of stocks in 1996, but that would have been a mistake. There was still plenty of runway left in that bull.

On the flip side, the equity risk premium was nicely positive—roughly 3%—at the start of the 2008 Global Financial Crisis, and there were periods in the 2010s when bonds outperformed stocks even though the equity risk premium suggested stocks were the better buy. As mentioned, it’s difficult to find a convincing correlation between the equity risk premium and forward returns. There have been many instances where the signal seems to work and others where it doesn’t.

The key thing to remember, in my view, is that stocks’ earnings yield—again, theoretically—tells investors what return they should expect over the long run if earnings stayed constant and no dividends were paid. But as we all know, many stocks pay dividends, and earnings are rarely constant. As we begin to parse Q4 2024 earnings, the picture that emerges is one of improving outlook, with companies not only coming ahead of estimates but also providing reassuring guidance for coming quarters (see chart below).

There’s a scenario where earnings come in far better-than-expected in 2025, while long-duration Treasury bond yields remain range-bound. That would be a positive scenario for stocks, in my view, regardless of whether the equity risk premium turned positive or not.

Bottom Line for Investors

The equity risk premium is a useful metric that investors can use in evaluating the stock-bond decision, but it’s certainly not the only consideration, in my view. Investors should also think about where they expect interest rates, inflation, and earnings to be a year from now, which is another way of assessing whether the equity risk premium is expected to rise or fall looking forward. From my vantage, I expect inflation to moderate, earnings to accelerate, and growth to continue above trend—all of which bolster the case for equities, in my view, even as Treasuries now offer a more attractive risk-free rate.

¹Wall Street Journal. January 27, 2025. https://advisor.zacksim.com/e/376582/bonds-has-disappeared-c3f9c223/5sksqg/1143709360/h/oV5BlINqgf8gjfV1x98TM8Vm5hn9sYINQwDJg8KhF_A

DISCLOSURE
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.

Weekly Market Commentary

Mitch Zacks – Weekly Market Commentary: Economy Keeps Chugging Along Despite Negative Headlines

Mitch Zacks – Weekly Market Commentary: As Baby Boomers Age, Will the Shift to Bonds Impact the Stock Market?

Mitch Zacks – Weekly Market Commentary: Bond Markets Signal Trouble Ahead. Should Investors be Worried?

Mitch Zacks – Weekly Market Commentary: How Big a Deal is the Moody’s Downgrade of U.S. Credit?

Mitch Zacks – Weekly Market Commentary: Categorizing A Market Selloff Can Help You Navigate It

Mitch Zacks – Weekly Market Commentary: U.S. Treasurys React to “Liberation Day”

Mitch Zacks – Weekly Market Commentary: Avoid Sudden Moves In This Market

Mitch Zacks – Weekly Market Commentary: Market Shock from Tariffs – How to Navigate Volatility

Mitch Zacks – Weekly Market Commentary: Investors Should Start Looking Beyond the Fed

Are You Overexposed to Growth Stocks?

Mitch Zacks – Weekly Market Commentary: The Current Equity Risk Premium is Zero. Should Investors Ditch Stocks?

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