The first five months of this year have been punctuated by significant geopolitical events in Venezuela and Iran. Counterintuitively, U.S. equity markets have advanced to all-time highs and long term Treasury bond yields recently touched 20-year highs of 5.20%. Year-to-date the S&P is up 10.7% while the NASDAQ has advanced just over 16%. However, from the recent March 30th Iran war lows, these indices are up 20% and 30% respectively, in what is now the fourth year of back-to-back double digit equity market gains. The bond market is a completely different story. The Treasury yield curve has shifted upward by 20 to 50 basis point across 2-30-year maturities. The outlook for Federal Reserve interest rate policy has reversed from three 25 basis point cuts, to now just a one quarter point increase which would bring the overnight federal funds rate back up to 4.00%.
The Artificial Intelligence (AI) boom has unleashed investor animal spirits driving sharp advances for technology companies as some old and new technology companies have marked parabolic price spikes in recent weeks. Comparisons to the tech bubble of the late 1990s is fair at this point since financial bubbles tend to only reveal themselves in retrospect. The current market environment is different and better now from an earnings and valuation standpoint versus the internet bubble of 26 years ago. However, the further markets run the closer we are to a typical or perhaps atypical correction. Investors have been conditioned in recent years for every correction to be brief and ultimately a compelling buying opportunity. Market timing is often a fool’s errand, but the time to evaluate total market exposure, portfolio stress testing, and evaluation of tax-efficient rebalancing strategies is now.
George J. Dickson Jr. | Senior Executive Vice President
Chief Investment Officer | Co-Head of Capital Markets
New York Private Bank & Trust | Emigrant Bank
