International Adjustments
Welcome to May! We have a lot to cover so let’s get to it!
We continue to see very choppy markets due to the uncertainty in the U.S. and global economies. We started the month off with the implementation of tariffs on every country in the global at various. levels. Retaliatory tariffs exacerbated the rates some countries faced, with China being the prime example. After the implementation the VIX more than doubled from 21 to 52. Many people panicked during the first weeks of April and moved stocks out of the S&P500 and the C Fund – this is a great example of how Mr. Market’s prices are erratic and how one should ignore short-term price fluctuations. At the end of April, we see the VIX back to around 24 and the C Fund only lost 0.68% this month.
While the tariffs continue to impose risk, I believe the worst has come and gone. The U.S. and the world knows what the tariff rates are and now they are lining up to negotiate. This type of economic cooperation will bring down the risk even more. I believe China and the U.S. are negotiating, despite public denials.
While the immediate tariff numbers are known, the actual long-term impact is not. However, beyond the initial freak out, tariff impacts are very slow to materialize and that makes them easier to digest and predict. Stability is our friend in long-term investing. So, the potential long-term impacts of increased inflation can be modeled, observed, assessed and factored into financial models. Energy prices significantly influence inflation. The Trump administration’s policy of supporting all energy forms could lower energy costs, potentially offsetting tariff-driven inflation.
In short, I’m not panicking. I expect U.S. indices to remain volatile as markets digest disruptions, but long-term investors can manage these challenges
The global economy, intrinsically tied to the U.S., will see much of the same. However, some sectors are seeing stagflation (Europe), others are seeing the lowest positive GDP growth in decades (China) and some are seeing modest growth (Central and South America). We have seen solid gains this year by the I Fund, mostly because the I Fund is highly diversified and invested in companies in countries that have shown a fair amount of resilience when the rest of the global panics. Additionally, a stronger U.S. dollar has made non-U.S. assets more attractive for U.S. investors, boosting the I Fund’s returns in dollar terms. It is not always the best investment, but it has its moments.
I am adjusting my investment mix to reflect my technical analysis and my assessments above. I’m thinking long-term. Keep investing!
