April 30, 2024

Rain or Shine? Navigating Risks and Seizing Opportunities

As the days grow warmer and creation awakens from its slumber, we at Align are also sharpening our focus on the evolving economic landscape. This April, we are digging into the current market dynamics, emphasizing risk management and the strategic positioning necessary to navigate these turbulent times.

Economic Resilience and Market Optimism

Despite the many challenges posed by current geopolitical tensions and economic uncertainties, the resilience of the equity markets continues to inspire Align’s confidence. As Fed Chairman Powell signals a pause and even potential rate cuts, we remain encouraged on the outlook for equities. The economy shows robust signs of strength. While the year’s outlook may be volatile, the year’s end could be promising.

Inflation is Sticking Around

One of the most pressing concerns for investors has been this persistent inflation, which has been an ongoing concern for at least two years. Although there’s a general consensus that inflation is tapering towards the Fed’s 2 percent target, recent developments—such as the closure of the Port of Baltimore and rising oil prices—suggest that we may encounter some delays. These factors necessitate a patient approach to monetary policy and its implications for the markets.

Earnings Growth Broadening

Our focus also extends to the S&P 500 earnings growth, as we are in the thick of earnings season, particularly how it shapes Align’s portfolio strategies. While tech giants like Amazon and Nvidia (“The Magnificent Seven”) continue to lead with strong fundamentals, there’s potential for broader market participation. An acceleration in earnings across various sectors could signal a healthier market dispersion, benefiting diversified investment portfolios, particularly with active management.

Geopolitical Risks and Navigating the Unknowns

The prolonged conflicts in Eastern Europe and the Middle East remind us of Donald Rumsfeld’s “unknown unknowns” that can also disrupt our markets. Developments in these foreign regions, along with U.S.-China relations, require continuous monitoring as they hold significant sway over domestic economic stability and investor sentiment.

Volatility as Opportunity

In line with our firm philosophy, we are encouraging clients to stay invested and diversified whenever the urge to fight or flight comes around. Market fluctuations are happening now and may intensify as the year drives on, particularly with election cycle shenanigans and social media nonsense. While this could test our resolve, it can also uncover opportunities for our fund managers. While our fund managers tactically allocate their underlying positions (their job), we strategically give them the space in our asset allocation models (our job). We ask you to stay invested (your job), and everything will be in balance!

Fun Fact: A Blossoming Surprise

In the spirit of spring and discoveries, did you know that the largest flower in the world, the Rafflesia Arnoldii, can grow up to three feet in diameter? It is also the world’s smelliest flower! Nature surprises us with such extraordinary creations just as the financial markets offer up surprises from time to time.  For more on this botanical wonder, visit National Geographic.

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