War Updates… Patience and Caution

Key Takeaways

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  Markets were trending lower before the war started

  “The markets were soft before the war. So all the war did was shuffle the pieces around a little bit. Now I'm not saying we're in for a market crash, but the markets are pretty much within a trading range, and they started to break down before the conflict even began.”

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  Software stocks are showing significant underlying weakness

  “Software stocks are ugly. This has not helped them much at all. You know, if I look at the software sector, if I'm looking at the IGV, it's actually lower than before the war. If you look at the last three days, it's actually gone down a lot; it's just getting ugly in the software sector.”

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  Lack of transparency creates systemic financial risk

  “The problems of the financial industry are a combination of the size of the problem and the transparency of the problem. If you have a small amount of problems that are non-transparent, it's a huge problem in the industry because people sell first and ask questions later.”

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  Semiconductors are currently diverging from broader tech

  “Semis are also a part of technology, and semis have actually done reasonably well. You look at the semiconductors, it's back to all-time highs. Should it be? I don't think so, but it is. My views don't matter, but it's a pretty big part of technology showing divergence.”

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  Patience and cash are valid investment strategies

  “What I'm doing is I'm taking a step back and I'm pausing. I'm just going to watch and see what happens because I don't know what's going to happen. I'm not going to predict right now; it is way too early to predict.”

Episode Description

Today we have war updates... patience and caution are needed as we focus on recent headlines. From inflation data and Fed commentary to geopolitical tensions and a temporary ceasefire, there has been surprisingly little lasting impact on markets. Underlying market weakness existed before the war and the conflict has mainly reshuffled sector performance leaving markets stuck in a fragile, uncertain range. While some areas like energy, materials, and staples showed prior strength, others such as software and parts of financials remain weak. Conflicting signals from interest rates, the dollar, and inflation expectations, along with continued volatility driven by political narratives rather than fundamentals, make it difficult to form a high-conviction outlook.  We discuss...  Markets largely ignored major news on inflation, Fed policy, and geopolitics, suggesting underlying uncertainty and indecision. The market was already weakening before the war, meaning the conflict mainly shifted trends rather than creating new ones. Current price action reflects a choppy trading range with no clear directional trend emerging. Software and parts of technology remain notably weak, even compared to pre-war levels. Semiconductor stocks have held up better, creating divergence within the tech sector. Financials are showing signs of stress, partly due to concerns around private credit and hidden risks. Lack of transparency in financial system exposures poses a greater risk than the size of the problem itself. The yield curve is flattening, reducing profitability for banks and signaling potential economic pressure. Interest rates, the dollar, and inflation expectations are sending mixed and unreliable signals. Oil price dynamics and futures markets suggest expectations of declining prices despite short-term spikes. Inflation impacts from higher energy costs may not be fully felt for several months. Geopolitical developments, particularly involving Trump's negotiation style, add unpredictability to market behavior. Sitting in cash is a valid strategy in uncertain environments despite inflation concerns. Missing small upside moves is preferable to being exposed to sudden market drawdowns. Elevated valuations and lingering macro risks suggest markets may not be as stable as they appear. Relief rallies can occur even while underlying economic and market stress persists. There are currently very few high-conviction investment opportunities across markets. Today's Panelists: Kirk Chisholm | Innovative Wealth Douglas Heagren | Mergent College Advisors Follow on Facebook: https://www.facebook.com/moneytreepodcast Follow LinkedIn: https://www.linkedin.com/showcase/money-tree-investing-podcast Follow on Twitter/X: https://x.com/MTIPodcast For more information, visit the full show notes at https://moneytreepodcast.com/war-updates-patience-and-caution