When Markets Change Like Michigan Weather

What do tariffs and Michigan weather have in common? Between the time you wake up and go to bed, chances are you’ll feel like you’re living in a different world.

To say there is uncertainty surrounding economic, tax, immigration policies, and corporate earnings forecasts would be a major understatement. Risk sentiment, as measured by the Volatility Index (VIX), recently surged to levels not seen since the global financial crisis of 2008–2009 and the early stages of the COVID-19 pandemic (as shown in the graph below). Fortunately, volatility has since eased—at least for now—as a 90-day reprieve is in place while the administration works to negotiate agreements with various nations.

Source: Google Finance

When examining the broader market, the S&P 500 initially fell by about 20% from its peak as investors rushed to sell before fully assessing the situation. Although the market has since recovered a portion of those losses, it is noteworthy that investor enthusiasm for equities has remained strong, with continued inflows into stocks, as shown in the chart below:

Will there be a recession? Maybe. As of this writing, betting markets suggest the odds are no better than a coin flip:

Supporting that view, the Atlanta Fed’s GDPNow model projects that first-quarter economic growth will likely turn negative, even after adjusting for gold flows (as seen below). (Update – just released the morning of April 30th, Q1 GDP came in at negative (0.3%), better than the (2.4%)

contraction expected by the Atlanta Fed, but still in negative territory). 

As investors and advisors, what should we do?

Stay disciplined and stick to a plan. As Benjamin Franklin wisely noted, "By failing to prepare, you are preparing to fail." For investors, preparation means reviewing your asset allocation, ensuring you have sufficient cash or other safe, liquid assets to weather market volatility, and staying focused on long-term goals without letting emotions or politics drive decision-making.