2nd Quarter Update: War, What is it Good For…

This past quarter has been extremely profitable, with accounts reaching all-time highs on the strength of the tech and semiconductor sectors. However, since the end of June, the market has experienced unusually high volatility, especially in these high growth tech sectors due to war, trade and energy uncertainties erasing some of those extraordinary gains. The old adage, “The first casualty of war is the truth,” aptly describes the challenge facing investors and analysts as conflicting information contributes to much of the volatility. The Administration’s regular assessments of the situation often proved overly optimistic and, in many cases, did not materialize as anticipated, adding to market corrections and uncertainty.

1st Quarter Update: Surprisingly Good Economic Strength

The one constant in economic assessments is, unsurprisingly, the ever present unpredictability of the unforeseeable. We recently wrote that inflation would begin to moderate again as the elevated levels caused by last spring’s tariffs roll off the year-to-date numbers this spring. But, alas, an armed conflict emerged literally out of nowhere, sending oil prices soaring and surprising the markets. Even if the conflict proves short lived, the damage to trust and stability in oil, the world’s most relied upon energy source, will take time and effort to repair before it can again be considered reliably stable and affordable for the global economy. Interestingly, the crude oil market has adapted admirably, continuing to meet global demand through a number of alternative sources, though at substantially higher prices.

1st Quarter Update: Do Politics Really Affect the Economy?

We last wrote that the economy seems to be on a stable and moderate growth path. This remains the case despite the recent volatility in the markets caused by political pronouncements of fairly extreme upcoming policies. In the past I have repeatedly said that “politics” generally have little effect on the economy because the economy is vast and relatively immovable in the short term. Policy changes have a greater impact on the markets which tend to be very excitable. But, ill advised political policies tend to be self correcting over time as they morph into beneficial actions that positively affect the economy based on economics and real time feedback as the economy responds.

Having said that, the markets have been very volatile in reacting to the President’s policy announcements regarding trade and his envisaged role of government. His relatively extreme initial views have been modified and normalized due in part to reactions and feedback from the markets, his constituency and when the Courts curtailed some of his plans based on various legalities. It is not always bad to shake things up as long as one can gravitate towards positive reforms.