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What this video’s about:

The recent market correction, marked by a swift 10% drop in the S&P 500 and Nasdaq, has naturally raised concerns among investors. In this episode, Paul Gifford, Chief Investment Officer at 1st Source Bank, and Pete Cahill, our Senior Portfolio Manager, discuss how historical market behavior informs their view of the changing trade landscape.

Historical Perspective: Staying Balanced During Volatility

Pete draws comparisons to 2022 market conditions when geopolitical tensions were rising between Russia and the Ukraine. The conflict’s effects on commodity prices, combined with inflation, interest rates, and Federal Reserve expectations, were part of a large market downturn.  But three years on, the markets are in a much different position.

He stresses the importance of keeping a long-term perspective, echoing the advice from that time: “Keep your head when others are losing theirs.” This historical context highlights the cyclical nature of market volatility and the importance of disciplined investment strategies.

Valuation Metrics and Market Correction Analysis

Paul highlights the high valuation metrics seen before the correction. Pete notes that that “In February of this year—just a few weeks ago—the S&P was trading at 22 times earnings, placing it in the 91st percentile historically.” The correction brought this down to a price-to-earnings multiple of 20, indicating a necessary adjustment.

Similarly, the technology sector, which had seen substantial growth, experienced a significant valuation correction. In February, it was trading at nearly 30 times earnings, but after the correction, it dropped by 14%, bringing it down to 25 times earnings.

While market corrections are unsettling, they help realign valuations with underlying fundamentals. The recent correction has also led to increased client inquiries about potential buying opportunities, showing a proactive approach to investment strategy.

Shifting Trade Dynamics and Tariff Implications

What is the impact of the Trump administration’s upcoming tariff announcements?  How will they affect trade?  Well, the data shows that there has been a major shift in U.S. trade partners. “From 2017 through the end of 2023, the U.S. top trade partners by value have shifted significantly,” Pete says.

Mexico has become the leading trade partner, surpassing China, with Canada also playing a major role. These changes reflect the ongoing restructuring of global supply chains, influenced by factors such as the COVID-19 pandemic. While trade imbalances with Mexico and Canada need attention, the overall strengthening of supply chain resilience is a positive development. The upcoming tariff announcements are expected to further impact these dynamics.

Investment Guidance and Long-Term Perspective

To sum up, the recent market correction and evolving trade dynamics underscore the need for informed, strategic investment decisions. Investors can navigate volatility effectively by analyzing historical trends and adapting to current economic conditions.

Our commitment remains to provide clear, insightful guidance, ensuring our clients are well-positioned for long-term financial success.

Stay informed and strategically positioned in today’s ever-fluctuating markets.  Subscribe to The Market Share for analysis and expert perspectives.

 

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