Michael Carrico

Any time the market makes big moves, specifically big negative moves, people are going to try to find the “why” behind the price action. It’s human nature. We love to find patterns and meaning. As I have said before, it is a worthwhile practice to understand the reason for market moves because it can demystify them and make them more bearable. However, it can also be a source of anxiety to be steeped in headlines which are designed to manipulate emotions. There has been no shortage of headlines in the last two weeks. Last week we had the Federal Reserve policy meeting, and they held rates steady while opening the door for near-term rate cuts without outright promising them. That same day, the Bank of Japan surprised markets with a rate hike and the yen began to rally relative to the U.S. dollar. Technology companies with an AI angle have been pillars of U.S. stock market performance since early last year and we received some disappointment in earnings releases from a handful of those companies which poured some cold water on AI enthusiasm. We have seen headlines of escalating tensions in the Middle East. There is news of a delayed launch on a new chip from Nvidia. There was a weak employment report on Friday. News came out over the weekend that Warren Buffett’s Berkshire Hathaway had sold a sizeable portion of its stake in Apple and raised cash to a record high. When the Oracle of Omaha makes moves, investors take notice. Amid the volatility on Monday there were headlines about recession risk, emergency Fed rate cuts, the yield curve, and the Sahm Rule. In short, it’s been noisy, and investors could pick a topic to worry about. We can’t cover all these topics, but let’s examine two of the more complicated ones, the Sahm Rule and the yen carry trade, and try to put them in context.

Any time the stock market falls for several days in a row, investors are bound to wonder what’s causing the volatility, even if they aren’t necessarily worried about it. I have not had many clients, friends, or family members ask me about the recent losses in the stock market yet, which I take to mean that most people aren’t that concerned. However, if the trend continues, it’s only a matter of time before I will be talking about the markets at dinner parties. Our readers and clients know that we think and invest long-term, but I always tell my clients that I want them to know why we’re doing what we’re doing. An informed investor is a more confident investor. With that in mind, let’s examine the recent price action in the markets, discuss what might be causing the reaction, and try to understand what the future may hold.