The word “historic” is often overused. Since last December, the capital markets have defied all prognosticators by recovering from the depths of a disastrous Q4, a dire month of May driving most tacticians to the hills, and plenty of positive and negative tweet storms. I don’t think anyone measures this, but the market’s ability to “react” and “recover” from such a diverse pool of factors seems “historic”.
Today is no different. On the cusp of a market recovery, a new tweet storm today caused equity markets to sell-off big-time. Trump escalated the trade war by tweeting that US companies should look for other suppliers instead of China (something that is already happening, by the way). The reaction was obvious.
In this market environment of jawboning and innuendo, there is no sanctuary; except to be broadly diversified. All those smart guys that overweighted short agency paper anticipating rising rates missed out big time on the benefits of investment grade corporate bonds and aggregate-style core bonds. Duration and high quality credit are the big winners this year on a risk-adjusted basis. Even high yield bonds, emerging market bonds, and preferred stocks proved their worth!
Keep your seat belts buckled!