Was it a clever strategy or a caving of conviction for the U.S. and China to come to a quick resolution to their trade war? Did Donald Trump acquiesce to market stress, or did China want a quick resolution to avoid a further disruption to their economy? Regardless of the catalyst, the news that the U.S. is going to sharply reduce the proposed tariff on Chinese goods was welcome news to the capital markets. The S&P 500 closed at 5,670 on April 2nd, the so-called liberation day. Three days later it closed nearly 15% lower as fear of stagflation crippled investor appetite for risk. As of May 12th, the index has regained all that loss and is now trading above the level touched when tariffs were first implemented.

Inflation last month continued to move lower. The Consumer Price Index for February showed a 3.1% year-over-year rise, the smallest in nearly four years, and well off the 6.6% peak hit in the third quarter of 2022. Even more encouraging, the month-over-month rate was 0.2%, which if sustainable would bring the annualized rate closer to the Fed’s stated target of 2.0%. However, the February measure was a relatively clean comparison, as it took place before the global tariff battle was launched. Much discussion has been had regarding the impact tariffs will have on prices, with the main contention being whether the impact on prices is inflationary or more of a one-time tax. Those believing a tariff to be a tax cite tariffs as a tool of the Trump administration to “level the playing field” regarding trade and, in the case of Mexico, halt the flow of illegal immigration into the United States.

As we start the new year, the consensus is that investors face a most uncertain future. That statement would raise the ire of most writing professors because the future is always uncertain. We can plan for an expected outcome, but the certainty of that outcome, no matter how high a probability we place on it, is never a certainty. Nevertheless, as we start the new year, the forecast for what lies ahead for the economy and the capital markets has never been cloudier.

With the distraction of the contentious Presidential campaign finally behind us, traders and investors have refocused on what policies the new President will pursue. The expectation had been that the final vote tally would take days, if not weeks to be announced. Instead, it was announced early the next morning that Donald Trump would be making a second appearance as POTUS. The capital markets have interpreted the results as good news, with S&P 500 index punching through 6,000 and the U.S. dollar reversing the swoon it had been in since May of this year. The irony is that the yield curve flattened, with short maturities rising in yield. The yield-to-maturity of the 2-year note has risen 75 basis points from the low despite the 75 basis points of overnight rate cuts in the last two months. Trump has vowed to energize the economy with the double edge sword of economic stimulus and regulatory rollback.

With the unusually hot (for the Northeast) weather, a most satisfying Olympics games, and the last of the days in the Hamptons behind us, now seems a good time to put together a road map of where we think the markets will be at the end of this year. Compared to years past, the last four months of 2024 seem particularly fraught with wild cards.