Weekly Market Commentary Archives - Page 2 of 4

Aug 04

Mitch Zacks – Weekly Market Commentary: Global Economic Resilience Driving Markets Up—So Far

By BayTrust Financial Weekly Market Commentary

How Global Economic Resilience is Driving Markets

At the turn of the year, we knew tariffs were going to be a key factor in the global economic growth story. Just how much of a factor was unclear.

Fast forward to today, and I think it’s fair to say that the uncertainty surrounding trade policy went far higher than many expected, while the global economic fallout was far more muted than many anticipated (at least so far). A high-level takeaway is clear: the global economy has once again shown that it’s capable of absorbing shocks.¹

The facts bear this out. Early estimates indicate that the global economy grew at a 2.4% annual rate in the first half of 2025, roughly matching its long-term trend. The IMF and World Bank have also both upgraded their full-year global growth forecasts in recent months, and we recently saw that world merchandise trade volumes rose 5.3% year-over-year in the first quarter, surprising to the upside. These are not data one would expect to accompany a global ‘trade war.’

Global economic resilience has also been reflected in business surveys. The S&P Global U.S. Composite PMI hit 54.6 in July, which is its fastest expansion rate this year. In the eurozone, PMIs have remained in expansion territory, with Germany’s new manufacturing orders recently rising at the fastest in three years. And PMI data for Japan, India, and Australia point to continued expansion. Remember, these are all countries that have been targeted with higher tariffs.

A major theme underpinning this resilience is how companies and supply chains have adapted. Businesses accelerated purchases to beat tariff deadlines (“front-loading”), rerouted exports through countries with lower tariffs, and shifted production closer to end markets—strategies honed during the pandemic. U.S. imports from Southeast Asia jumped 28% year-over-year in the first four months of 2025, and overall Chinese exports, despite falling to the U.S., rose 6% thanks to growth in Asia, Europe, and Africa.

We’re also seeing fundamental strength in U.S. corporate earnings. As I write, S&P 500 companies have posted 8.3% earnings-per-share (EPS) growth on 4.9% higher revenues in Q2 2025. But the key metric is that 83.3% of reporting companies have beaten EPS estimates, and 80.4% have beaten revenue estimates. These ‘beats percentages’ are tracking notably above the historical averages for this group of reporting companies, as the comparison charts below show.

In my view, this resilience has fed into the sustained equity market rally. The ability of companies to navigate tariffs—whether it’s from passing on costs, shifting suppliers, or absorbing margin pressure—has made earnings season better-than-expected and provided a tailwind for stocks in the process.

As I’ve written many times before, markets do not need perfect conditions to move higher. They just need things to be less bad than feared, which is what I think we’re seeing today. Many investors braced for a negative shock months ago, which set the bar for a positive surprise very low. But as evidenced by global economic fundamentals we’re observing now, the tariff impact so far has been far less damaging than most expected, which has markets responding accordingly.

Bottom Line for Investors

The market has spent much of 2025 pricing in trade disruptions, geopolitical uncertainty, and the potential for slower global growth. But reality looks much different than the worst fears. Businesses are adapting, consumers are spending, and governments around the world have been engaging in fiscal and in some cases, monetary stimulus. In short, the global economy is navigating the tariff upheaval in stride.

This resilience has been welcomed, but to be fair its sustainability is not assured. Much recent strength reflects one-off factors—like inventory buildup and pre-tariff stockpiling—which could unwind in the months ahead. Survey data and central bank commentary (e.g., from the ECB and the Fed) suggest demand could cool, especially in the eurozone, if exports to the U.S. fall sharply. Watching data closely in the coming months will be crucial, in my view.

For now, I think it’s fair to say that the risks tied to the trade war have likely been overestimated. Economic resilience has been the bigger theme, and it also so happens to be one of the most important forces that drives markets over time.

¹Wall Street Journal. July 21, 2025. https://advisor.zacksim.com/e/376582/-b2c1824a-mod-djemMoneyBeat-us/5tcwpt/1280980407/h/855hLOE5hsmyjbsXVf-7n_q0Q7yQg_3gbc0jTrm2E2A

²Zacks.com July 25, 2025. https://advisor.zacksim.com/e/376582/loom-what-can-investors-expect/5tcwpx/1280980407/h/855hLOE5hsmyjbsXVf-7n_q0Q7yQg_3gbc0jTrm2E2A

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

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Any projections, targets, or estimates in this report are forward looking statements and are based on the firm’s research, analysis, and assumptions. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. All expressions of opinions are subject to change without notice. Clients should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed in this presentation.

Certain economic and market information contained herein has been obtained from published sources prepared by other parties. Zacks Investment Management does not assume any responsibility for the accuracy or completeness of such information. Further, no third party has assumed responsibility for independently verifying the information contained herein and accordingly no such persons make any representations with respect to the accuracy, completeness or reasonableness of the information provided herein. Unless otherwise indicated, market analysis and conclusions are based upon opinions or assumptions that Zacks Investment Management considers to be reasonable. Any investment inherently involves a high degree of risk, beyond any specific risks discussed herein.

The S&P 500 Index is a well-known, unmanaged index of the prices of 500 large-company common stocks, mainly blue-chip stocks, selected by Standard & Poor’s. The S&P 500 Index assumes reinvestment of dividends but does not reflect advisory fees. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor. An investor cannot invest directly in an index.

The Russell 1000 Growth Index is a well-known, unmanaged index of the prices of 1000 large-company growth common stocks selected by Russell. The Russell 1000 Growth Index assumes reinvestment of dividends but does not reflect advisory fees. An investor cannot invest directly in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor.

Nasdaq Composite Index is the market capitalization-weighted index of over 3,300 common equities listed on the Nasdaq stock exchange. The types of securities in the index include American depositary receipts, common stocks, real estate investment trusts (REITs) and tracking stocks, as well as limited partnership interests. The index includes all Nasdaq-listed stocks that are not derivatives, preferred shares, funds, exchange-traded funds (ETFs) or debenture securities. An investor cannot invest directly in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor.

The Dow Jones Industrial Average measures the daily stock market movements of 30 U.S. publicly-traded companies listed on the NASDAQ or the New York Stock Exchange (NYSE). The 30 publicly-owned companies are considered leaders in the United States economy. An investor cannot directly invest in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor.

The Bloomberg Global Aggregate Index is a flagship measure of global investment grade debt from twenty-four local currency markets. This multi-currency benchmark includes treasury, government-related, corporate and securitized fixed-rate bonds from both developed and emerging markets issuers. An investor cannot invest directly in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor.

The ICE Exchange-Listed Fixed & Adjustable Rate Preferred Securities Index is a modified market capitalization weighted index composed of preferred stock and securities that are functionally equivalent to preferred stock including, but not limited to, depositary preferred securities, perpetual subordinated debt and certain securities issued by banks and other financial institutions that are eligible for capital treatment with respect to such instruments akin to that received for issuance of straight preferred stock. An investor cannot invest directly in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor.

The MSCI ACWI ex U.S. Index captures large and mid-cap representation across 22 of 23 Developed Markets (DM) countries (excluding the United States) and 24 Emerging Markets (EM) countries. The index covers approximately 85% of the global equity opportunity set outside the U.S. An investor cannot invest directly in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor.

The Russell 2000 Index is a well-known, unmanaged index of the prices of 2000 small-cap company common stocks, selected by Russell. The Russell 2000 Index assumes reinvestment of dividends but does not reflect advisory fees. An investor cannot invest directly in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor.

The S&P Mid Cap 400 provides investors with a benchmark for mid-sized companies. The index, which is distinct from the large-cap S&P 500, is designed to measure the performance of 400 mid-sized companies, reflecting the distinctive risk and return characteristics of this market segment.

The S&P 500 Pure Value index is a style-concentrated index designed to track the performance of stocks that exhibit the strongest value characteristics by using a style-attractiveness-weighting scheme. An investor cannot directly invest in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor.

Jul 22

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Mitch Zacks – Weekly Market Commentary: How the One Big Beautiful Bill Act (OBBBA) Affects Investors

By BayTrust Financial Weekly Market Commentary

Digging into the One Big Beautiful Bill Act

The One Big Beautiful Bill Act (OBBBA) has been signed into law, which makes now a good time to review how the law financially affects individuals, families, and businesses. Depending on where you look, you can find sweeping praise or stern criticism of the law’s provisions. I’ll offer no such viewpoint here.¹

My goal instead is to give readers straightforward, objective commentary on how the bill impacts household and corporate finances, which by extension can provide clues regarding potential investment implications.

I’d like to start with what has not changed. Despite some speculation during the legislative process, the OBBBA doesn’t raise corporate tax rates or alter capital gains tax rates. There is also no “millionaire’s surcharge,” no wealth tax, and no financial transaction tax, proposals that circulated in early drafts but didn’t make it into the final version. For many investors and business owners, the absence of these changes means that planning strategies from recent years remain intact.

Now let’s jump into what the law means for individuals, families, and businesses.

Key Provisions for Individuals and Families:

A major feature of the OBBBA is that it makes the 2017 Tax Cuts and Jobs Act individual tax rates permanent. This includes:

Lower marginal tax brackets
The expanded standard deduction was locked in, and will now be adjusted for inflation starting in 2026. In that year, the standard deduction for single filers will rise to $16,550, while married couples filing jointly will be able to deduct $33,100. For 2025, single filers will see a temporary $1,000 increase in the standard deduction while joint filers will receive $2,000.
The repeal of personal exemptions
Higher thresholds for the alternative minimum tax (AMT)
For individuals who own small businesses, OBBBA also made permanent the 20% deduction for qualified business income (QBI) from pass-through entities like S corps and partnerships.

Several new deductions were also added, but many come with income phaseouts or sunset provisions. Here are the key deductions I think will impact most readers:

The state and local tax (SALT) deduction cap rises from $10,000 to $40,000 from 2025 to 2029, but it phases out above $500,000 of modified adjusted gross income (MAGI) and reverts to $10,000 in 2030.
A new $6,000 per-person deduction for seniors (age 65+) begins in 2025 and runs through 2028. It begins to phase out at $75,000 of income for singles and $150,000 for married couples.
A deduction of up to $25,000 for tips and $12,500 for overtime pay is available—but again, both are subject to income phaseouts and expire in 2028.

These new deduction provisions offer targeted relief and are allowed even if the standard deduction is taken, which helps widen their reach. However, they do not reduce adjusted gross income (AGI), meaning they won’t lower exposure to the 3.8% net investment income tax or Medicare IRMAA surcharges.

Key Provisions for Businesses

OBBBA reinstates and makes permanent 100% bonus depreciation for qualified property placed in service after January 19, 2025. It also adds a new category, Qualified Production Property, for U.S.-based manufacturers and refiners. Importantly, both bonus depreciation and the expanded standard deduction will now be adjusted for inflation starting in 2026, offering longer-term planning consistency for businesses.

Other key changes for business owners include:

Increased Section 179 expensing limits (now $2.5 million), which allows businesses to write off the full cost of eligible assets in the year they’re placed in service, rather than depreciating them over time. For business owners making large capital investments—this can deliver meaningful tax savings and improve after-tax cash flow in the near term. In other words, good for earnings.
Retroactive R&D expensing for 2022 and 2023
More lenient business interest deductibility under Section 163(j), which effectively raises the ceiling on deductible interest expense, especially for capital-intensive industries. Companies that invest heavily in equipment, facilities, or R&D often have large depreciation expenses. Excluding those from the interest deduction formula means more of their borrowing costs can be written off, making financing growth more attractive.

Bottom Line for Investors

There’s a lot to unpack here, and I did not broach the issue of deficits and the trajectory of U.S. debt, both of which could impact interest rates over time. That said, many of the new provisions expire before the end of the decade, and future Congresses will almost certainly debate the economic and fiscal impact in future years.

In the meantime, investors should view this through the lens of being substantial fiscal stimulus, which also comes as the Federal Reserve appears poised to ease monetary policy to bring the benchmark fed funds rate back to the neutral level. When you have fiscal stimulus and monetary stimulus in the same year, it’s difficult to make a case against owning equities.

¹Congress. https://advisor.zacksim.com/e/376582/9th-congress-house-bill-1-text/5tb18c/1271604313/h/b5NI_ZnFcoKsqat2VL03uwfStfhhtVEi0vJOs9LloWc

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

Jul 14

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Mitch Zacks – Weekly Market Commentary: A Healthy Signal in the Recent Market Rally

By BayTrust Financial Weekly Market Commentary

Stocks’ “v-shaped” bounce off the April lows has been strong, steep, and convincing. But it also has a characteristic I would classify as healthy—it’s been broad.

Market watchers and readers of my column are familiar with the years-long theme of mega-cap Technology stocks driving a lion’s share of the gains in the S&P 500 index. While this general theme remains relevant in the current market environment, we’ve also seen participation widen substantially in the past several weeks to include sectors like Financials, Industrials, and Utilities.

Technical data confirms this trend. The number of S&P 500 stocks trading above their 50-day moving average has surged to levels not seen since last fall, and advance-decline ratios, which count the number of stocks rising versus those that are falling have notched new highs.¹

Historically, this kind of broadening has been a positive sign. Broader participation means more leadership, more diversification, and I would argue more investor confidence that gains aren’t part of a momentum trade (like enthusiasm for AI or meme stocks).

What’s been encouraging to me is that investors appear to be taking more interest in areas of the market with relatively attractive valuations. Mega-cap tech names often trade well above 30 times forward earnings, which is not the setup in a sector like Financials. What we’re seeing now is that capital is rotating from ‘expensive’ areas of the market to ‘cheaper’ sectors and regions, which I see as a good thing. Readers know what I think about broad diversification.

To be fair, there are also some unhealthy qualities to be found in this market rally. Some pockets of the market, particularly among unprofitable companies and what have been deemed ‘meme stocks,’ have staged very powerful rebounds. Indeed, certain stocks that were hit hardest earlier this year have seen triple-digit percentage gains since April, fueling headlines about a resurgence in speculative trading. These moves may remind some of the GameStop / AMC craze, and it’s clear that a segment of retail investors is once again leaning into risk. But these cases are the exception, not the engine driving the overall market rally. Their sharp recoveries largely reflect how steep their prior declines were, and they don’t signal a broad market shift toward speculation, in my view.

The broader rally has been driven by sector rotation, valuation-based rebalancing, and renewed interest in previously lagging industries. Unlike during past bouts of exuberance, we’re not seeing indiscriminate buying or stretched valuations across the board. Breadth has improved across fundamentally sound names in Financials, Industrials, and other cyclical sectors, suggesting a more balanced and sustainable move higher. If anything, the presence of skepticism about speculative activity may indicate that sentiment remains grounded, not euphoric.

The entire story also has the backdrop of resilient economic data, which strengthens the case that this is a healthy market rally. We continue to see modest inflation, solid job growth, and a consumer who may be a touch pessimistic but continues to spend anyway. In my view, there’s a reasonable case that this market has room to run, with expanding breadth being a support to that argument.

Bottom Line for Investors

For investors, expanding market breadth should be a testament to the value of owning a broadly diversified portfolio. In environments where participation widens, opportunities tend to emerge in corners of the market that have been overlooked or underappreciated. A diversified portfolio doesn’t need to chase the leader, as leadership shifts, you’re already positioned to participate.

Looking ahead, one area worth watching closely is small-cap stocks. While they’ve lagged in the current rally, that underperformance could represent latent potential rather than persistent weakness. If economic conditions remain stable and monetary policy eases further, small-caps—particularly those with strong balance sheets—could catch up in a hurry. Historically, when market breadth improves meaningfully, small- and mid-cap stocks often follow with some of the strongest relative gains.

¹Wall Street Journal. June 28, 2025. https://advisor.zacksim.com/e/376582/link-desktopwebshare-permalink/5t9b1n/1265478991/h/ZSGyjPRySxukaLNY5EFTNCvEYSGwS9kWz-HDQKbQQkI

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

Jul 09

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Mitch Zacks – Weekly Market Commentary: How Stocks Managed to Rally Through the Noise in the Second Quarter

By BayTrust Financial Weekly Market Commentary

How Stocks Managed to Rally Through the Noise in the Second Quarter

In the three months ending June 30th, U.S. and global stocks did what they’ve done many times before: they climbed a wall of worry.

If we start this story in April, we know that the market’s uneasiness was triggered in response to the shock of tariffs and accompanying fears of a global trade war/economic slowdown. In short order, the S&P 500 plunged into correction territory and dragged investor sentiment down with it. Headlines were awash with predictions of prolonged economic pain, and many investors became extremely skeptical.

Yet as I write, the S&P 500 index has crossed back into record territory, having posted its best quarterly performance in over a year.

Did all the uncertainty over trade and economic growth dissipate in these past three months, creating all the right conditions needed for a powerful market rally? Absolutely not! If anything, uncertainty and negativity are as high today as they were three months ago.¹

But that’s just the thing—markets don’t need perfect conditions to move higher. In fact, one of the most consistent traits of bull markets is that they advance when expectations are low and the news is simply “less bad” than feared. That’s what we’ve seen again this quarter.

With the backdrop of somewhat extreme investor pessimism on trade and economic growth, consider the catalysts. First, better-than-expected corporate earnings. After slashing full-year profit forecasts in Q1, many companies delivered solid results and issued relatively upbeat guidance. Zacks analysts expect S&P 500 earnings to rise this year, and even more so next year. The growth outlook hasn’t vanished; it’s just been recalibrated. Read: less bad than feared.

Second, the economy continues to show resilience. Inflation has not returned in the way that many feared, the labor market remains stable, and consumers appear to be holding up. Though risks like delayed tariff impacts, a slower global manufacturing cycle, and persistent geopolitical uncertainty remain, those risks haven’t yet translated into fundamental damage. Read: less bad than feared.

You can see the pattern here. For markets, oftentimes the absence of bad news is as powerful as the presence of good news. It doesn’t take perfection to move higher. It only takes outcomes that are modestly better than expected. With delayed reciprocal tariffs and broad-based economic resilience, that’s precisely what we got in Q2.

Stocks climbing the “wall of worry” is a theme I revisit often in my columns because it’s a pattern that recurs so frequently. It makes sense as to why: investing is emotional for many, and with media narratives often grasping at bad news, it does not take much to shift expectations lower than they should be. That opens the door for any type of stabilization, or even just a pause in bad news to spark a relief rally.

In volatile markets, investors tend to wait for clarity before committing or re-committing capital. But that’s often a costly mistake. You’d be hard-pressed to find historical examples of markets waiting for full visibility or green shoots before rallying. The opposite tends to be true. This quarter’s rebound is a case in point: despite lingering questions about tariffs, inflation, and global growth, stocks surged off the April lows. Investors waiting for an all-clear likely missed the recovery.

Bottom Line for Investors

One of stocks’ hallmark characteristics is that they love to climb walls of worry, fueled not by perfect news but by news that’s not as bad as feared. The second quarter of 2025 reminded us of this pattern. Sentiment turned sharply negative in April, only for the market to rebound strongly as fundamentals held steady and policy fears began to ease.

For long-term investors, the takeaway is simple: don’t wait for certainty. Markets move ahead of headlines, not after them, and all they need is a gap between perception and reality.

Markets don’t wait for perfect conditions to move higher—they advance when reality is better than feared. Understanding these signals can help you stay ahead, even in uncertain times.

¹Wall Street Journal. June 30, 2025. https://advisor.zacksim.com/e/376582/2905785-mod-finance-lead-story/5t8fn5/1261463401/h/lvWAPJZe1Mw2dSMaXEIPB_IrVd50nquW6TUvkf8HotA

²Zacks. June 27, 2025. https://advisor.zacksim.com/e/376582/head-to-the-q2-earnings-season/5t8fn8/1261463401/h/lvWAPJZe1Mw2dSMaXEIPB_IrVd50nquW6TUvkf8HotA

DISCLOSURE

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

Jun 16

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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

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

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.

Weekly Market Commentary

Mitch Zacks – Weekly Market Commentary: Global Economic Resilience Driving Markets Up—So Far

Mitch Zacks – Weekly Market Commentary: How the One Big Beautiful Bill Act (OBBBA) Affects Investors

Mitch Zacks – Weekly Market Commentary: A Healthy Signal in the Recent Market Rally

Mitch Zacks – Weekly Market Commentary: How Stocks Managed to Rally Through the Noise in the Second Quarter

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”

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