Trouble on the Street

by: , Portfolio Strategist, MainStay Investments

Stock prices plunged last week amid a barrage of headline news. As a result, the S&P 500 Index fell nearly 2.5% on Thursday and another 2.1% on Friday, dropping the Index near the recent lows of February 8.

What’s Happening Here?

Unlike February’s technical sell off, sentiment is ostensibly driving this weakness. Underlying economic fundamentals and market pricing have diverged, as investors digest a news storm that included initial salvos in a potential trade war, higher interest rate expectations from Federal Open Market Committee (FOMC) members, Facebook data privacy concerns, and a reshuffling of White House personnel.

We agree some caution is warranted, but only to an extent. Recent tariffs will have minimal impact on an otherwise vibrant economy. Should this prove to be little more than a negotiating tactic, then the sell-off is likely to prove grossly overdone. Conversely, if we are witnessing a fundamental shift in U.S. policy and the global trade regime, then the impact on economic growth and financial markets will be significant. Recent stock price moves appear to be discounting the possibility of the latter.

Sit Tight – Don’t Buy, Don’t Sell

Investors experienced an aggressive sell off to trend ($2532) earlier this year on February 9. We believed this was a solid buying opportunity. Markets subsequently bounced off those trend levels, but the recent memory of a sharp correction continues to weigh on the upside market strength.

S&P 500 Index (SPX): 240 Days, 60 Minutes

Source: Bloomberg, as of 3/26/18. Past performance is no guarantee of future results, which will vary. It is not possible to invest directly in an index.

If trade anxiety doesn’t escalate further, we suspect stocks will again look very attractive. But, if Assistant to the President, Peter Navarro, and his protectionist comrades are driving the trade policy ship, this could yet get uglier still. So, we wait. We wait until there’s some sense as to where things go from here. The S&P has retested February lows and saw prices fall further. Lifted by solid domestic economic underpinnings, we believe the market will find the strength to reach new highs later this year.

Opinions expressed are current opinions as of the date appearing in this material only. The information and opinions contained herein are for general information use only. MainStay Investments does not guarantee their accuracy or completeness, nor does MainStay Investments assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Such information and opinions are subject to change without notice, and are not intended as an offer or solicitation with respect to the purchase or sales of any security or as personalized investment advice. There can be no guarantee that any projection, forecast, or opinion in these materials will be realized. Past performance is no guarantee of future results.

About Risk

All investments are subject to market risk, including possible loss of principal. There is no assurance that the investment objectives mentioned will be met. Diversification cannot assure a profit or protect against loss in a declining market.

Index performance is shown for illustrative purposes only and does not predict or depict the performance of the Funds. Indices are unmanaged, include the reinvestment of dividends, and cannot be purchased directly by investors. Past performance does not guarantee future results.

S&P 500 Index is an unmanaged index and is widely regarded as the standard for measuring large-cap U.S. stock market performance.

MainStay Investments® is a registered service mark and name under which New York Life Investment Management LLC does business. MainStay Investments, an indirect subsidiary of New York Life Insurance Company, New York, NY 10010, provides investment advisory products and services. IndexIQ® is an indirect wholly owned subsidiary of New York Life Investment Management Holdings LLC. ALPS Distributors, Inc. (ALPS) is the principal underwriter of the ETFs. NYLIFE Distributors LLC is a distributor of the ETFs and the principal underwriter of the IQ Hedge Multi-Strategy Plus Fund. NYLIFE Distributors LLC is located at 30 Hudson Street, Jersey City, NJ 07302. ALPS Distributors, Inc. is not affiliated with NYLIFE Distributors LLC. NYLIFE Distributors LLC is a Member FINRA/SIPC.

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Robert Serenbetz

Portfolio Strategist, MainStay Investments

Robert Serenbetz is the Portfolio Strategist for the Strategic Asset Allocation & Solutions Group (SAS). He contributes to investment thought leadership and communication efforts across New York Life Investment Management

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