The S&P 500 is down 8% over the last 9 days. This decline represents what we believe is a normal and healthy retest of the February lows. Stocks are quite oversold as we plumb our way back to those February levels. This suggests to us that there is little downside momentum left at this critical support level. Earnings season is on the horizon. It will be the first quarter in which the tax reform will have had an impact. We expect strong earnings to fuel a rebound in stocks.

While we acknowledge the risks associated with a trade war, we continue to believe this “war” will differ greatly from the one kicked off by the Smoot-Hawley tariffs of the 1930’s. Importantly, as details of the tariff, and the response from countries affected, filter into the market, the cloud of uncertainty hanging over the market will dissipate. The market can deal with good news and bad news much better than uncertainty. So, while tariffs may not represent good news, removing the uncertainty surrounding them will be an improvement for the market.

We are also keeping an eye on the Federal Reserve for clues of any change in the glide path for interest rate policy. For now, we believe the Fed will be slow and measured in their move to raise rates. This will be positive for stocks.

We told clients last month that volatility was back and that has been the case. It will continue to be the case going forward but we expect higher stock prices ahead. We expect this retest of the February low to hold and not lead to another leg lower for stocks. With this in mind, we expect to invest the cash we have held in reserve in our managed accounts over the next several days. Our focus will be on stocks that have held up well during this recent sell-off. Energy, Technology and Health Care stocks will be of special interest to us.

Sincerely,

Kessler Investment Group, LLC