Over the past few months, markets have been roiled by a series of extraordinary and unusual events—many of which might only occur once in a decade. Amid heightened uncertainty stemming from protracted tariff negotiations, geopolitical tensions in the Middle East surged as conflict escalated between Israel and Iran. In a dramatic development, the U.S. deployed B-2 bombers over a weekend to strike Iran’s nuclear facilities, prompting a swift decline in equity market futures.

Oil prices surged to approximately $78 per barrel on concerns that Iran might retaliate by disrupting the oil supply route through the Strait of Hormuz. However, as fears eased, equity futures recovered, and oil ultimately ended the month of June near $65 per barrel.

A tentative ceasefire agreement between Israel and Iran—fragile though it may be—provided further relief, helping markets rally. For the month of June, the S&P 500 rose 4.96 percent, while the yield on the 10-year Treasury fell roughly 17 basis points (0.17%) to 4.24 percent.

To underscore just how extreme this market environment has been: the NASDAQ Composite posted its worst start to a year through mid-April since its inception, only to reach an all-time high by the end of June—a remarkable reversal.

Despite market enthusiasm surrounding tariff developments, the actual substance behind the headlines has been minimal. Much of the optimism is based on pauses or vague assurances rather than concrete agreements. For instance, Commerce Secretary Lutnick claimed that a trade deal with China had been completed, a statement echoed by President Trump, who then acknowledged a signed trade “truce” with China—a notable improvement when contrasted with the earlier threat of 145 percent tariffs. Still, significant challenges remain. China has reportedly imposed a six-month limit on rare-earth exports, and many semiconductor firms remain in the dark about what trade rules with China will ultimately look like.

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The S&P 500 rallied 6.1 percent in May, though persistent tariff-related uncertainty continued to weigh on market sentiment. The primary driver behind the month’s gains was a temporary easing of trade tensions between the U.S. and China. Both countries agreed to a 90-day pause on reciprocal tariffs: China committed to reducing import duties on U.S. goods from 125 percent to 10 percent, while the U.S. lowered tariffs on Chinese imports from 145 percent to 30 percent – which includes a 20 percent levy tied to China’s production of fentanyl-related products.

However, market volatility resurfaced on May 23 when President Trump threatened a 25 percent tariff on Apple unless the company moved iPhone production to the U.S. That same day, he posted on social media recommending a flat 50 percent tariff on European Union imports starting June 1. Markets rebounded after Trump later announced a delay in the EU tariffs until July 9, following what he described as a “very nice call” with European Commission President Ursula von der Leyen.

Tensions flared again on May 30 when the President accused China, via social media, of “totally violating its agreement with us.” Further complicating the picture, the U.S. Court of International Trade ruled that the administration had exceeded its authority in imposing sweeping tariffs on nearly all foreign nations. An appeals court subsequently issued a temporary stay, allowing the tariffs to remain in effect for now.

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April brought extreme volatility across global financial markets, with sharp swings in stocks, bonds, currencies, and commodities. Much of the turmoil was sparked by President Trump’s unexpected implementation of “Liberation Day” tariffs, which marked a sharp departure from the initially discussed reciprocal and parity-based proposals.

The S&P 500 plunged more than 11 percent over a three-day span, only to rebound 9.5 percent in a single day following news of a 90-day pause on the tariffs—excluding China. For the month, the index ended down 0.76 percent.

Bond markets also experienced significant disruption. The yield on the 10-year U.S. Treasury surged from 4.01 percent on April 4 to 4.59 percent just five days later, reportedly driven by aggressive selling from Japan. By month-end, yields had eased to 4.17 percent.

Commodities were not immune. West Texas Intermediate crude oil fell 18 percent, closing near $59 per barrel. Gold briefly hit an all-time high of $3,500 per ounce before settling at approximately $3,318.

The volatility was set in motion on April 2, when President Trump issued an Executive Order declaring a national emergency. The order cited “a lack of reciprocity in our bilateral trade relationships, disparate tariff rates, and non-tariff barriers.” One example: the U.S. imposes a 2.5 percent tariff on imported gasoline-powered passenger vehicles, while the European Union levies a 10 percent tariff.

While the idea of reciprocal tariffs resonated with many, the administration’s initial actions went well beyond parity. The tariff hikes also targeted non-tariff barriers—such as currency manipulation, regulatory hurdles, government subsidies, and persistent trade deficits—taking markets by surprise.

Historically, sharp sell-offs are often followed by equally strong rebounds. The real question now is: where do we go from here?

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Over the past few months, market sentiment has shifted from optimism to heightened uncertainty, driven by concerns over tariffs, government spending cuts, rising prices, and a sharp decline in consumer spending. In February, the S&P 500 fell 1.4 percent, accompanied by increased volatility across financial markets.

Interest rates on the 10-year U.S. Treasury Note dropped from 4.58 percent at the end of January to 4.24 percent, reflecting growing worries about a slowing economy. Meanwhile, oil prices declined by approximately $5 per barrel over the past month, settling at $70.

Adding to market turbulence, President Trump announced plans to impose 25 percent tariffs on Canadian and Mexican imports beginning March 4, 2025, along with an additional 10 percent tariff on Chinese goods — on top of the 10 percent already implemented in February. This has fueled volatility, particularly as China and other affected nations have vowed to retaliate.

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The optimism sparked by Donald Trump’s election, fueled by hopes for less regulation and lower taxes, hit a snag in December. The S&P 500 index fell 2.5 percent during the month, while interest rates on the 10-year U.S. Treasury Note climbed from 4.18 percent at the end of November to 4.58 percent by December 31, 2024. This increase reflected market unease following Federal Reserve Chairman Powell’s efforts to justify a December rate cut. At the same time, oil prices rose over 3 percent, closing the year at approximately $71.72 per barrel.

In late December, President Biden signed a continuing resolution that funds the government through March 14, 2025. The legislation also includes emergency disaster aid for hurricane-affected communities and support for farmers. This action averted another potential government shutdown. Notably, Congress last completed the full budget process with all appropriation bills on time in 1996.

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Following the highly anticipated presidential election, the S&P 500 index rallied 5.7 percent in November and closed above 6,032 for the first time.  This advance was driven by the resolution of election uncertainty and the absence of a contested outcome, which prompted the unwinding of negative bets and a wave of fresh capital investments.  Meanwhile, the 10-year U.S. Treasury Note saw its yield decline by 10 basis points (0.10%) during the month, ending at 4.18 percent, as the Federal Reserve implemented its second interest rate cut of the year.  Oil prices remained relatively stable, holding just below $69 per barrel.

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As we enter a pivotal election season, volatility in the U.S. stock and bond markets has notably increased. In October, the S&P 500 index dropped by just under 1 percent, interest rates generally rose, gold reached a new record high, and oil prices have bounced up and down depending on news out of the Middle East.

In the bond market, the yield on the 10-year U.S. Treasury dropped to 3.63 percent following a recent interest rate cut by the Federal Reserve on September 16, 2024. However, by November 1, 2024, this yield climbed to 4.37 percent, marking a 0.74 percent increase. This upward trend reflects market concerns about the significant rise in government debt and uncertainty surrounding the fiscal policies of the next administration.

U.S. federal debt as a percentage of Gross Domestic Product (GDP) now stands at over 120 percent, down from the COVID-era peak of 132 percent but still nearly double the level before the 2008 financial crisis. The annual interest expense on the roughly $36 trillion federal debt has risen to over $1.1 trillion – almost double the pre-COVID level and approaching 25 percent of annual tax receipts. In fact, this interest expense now surpasses every budget line item except Social Security.

TJT Capital Group’s InVEST Risk Model ® has helped our clients participate in bull markets and protect capital from the devastation of bear markets by focusing on 5 indicators that really matter when it comes to determining the health and direction of markets.  The following is the most recent update.

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The Federal Reserve reduced the federal funds rate by 50 basis points (0.50%), bringing it to a range of 4.75 percent to 5.0 percent.  This action helped lift the S&P 500 index by 2.0 percent in September. Meanwhile, the yield on the 10-year Treasury Note fell to 3.81 percent, down from 3.91 percent at the end of August, and the price of West Texas Intermediate (WTI) oil dropped by more than $6, settling at approximately $68.31 per barrel by the end of the month.

In our previous update, we noted that “rising geopolitical tensions remain unresolved.”  On October 1, 2024, Iran retaliated against Israel for recent strikes in southern Lebanon, further escalating tensions in the Middle East.  Although the conflicts between Russia and Ukraine, and Israel and Hamas, have been ongoing, market desensitization should not lead to complacency.  A senior White House official also warned that a direct military attack by Iran against Israel would result in severe consequences for Iran.

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After a turbulent start to August, marked by global markets under pressure—most notably Japan’s Nikkei 225 index plunging 12.4 percent in a single day—markets managed to recover, aided by central bank intervention, and closed out the month on a positive note.  Despite the early decline, the S&P 500 index ended August with a 2.2 percent gain.

On August 1, 2024, the Dow Jones Industrial Average experienced a dramatic near-1000 point swing from intraday high to low, a volatility rarely seen in a stable market. Just days later, on August 5, 2024, a global market sell-off was triggered by Japan as the “yen carry trade” unraveled.  The catalyst was the Bank of Japan (BOJ) raising interest rates to 25 basis points (0.25%)—the highest in seventeen years—which led to a sharp move in the U.S. dollar/yen exchange rate from about 160 to 142, forcing a rapid unwinding of massive leveraged positions.

For years, many investors had borrowed large sums in yen, often at near-zero or negative interest rates, to invest in higher-yielding assets—a strategy known as the “yen carry trade.”  This approach works as long as interest rate differentials and currency exchange rates remain relatively stable.  However, when the dollar/yen exchange rate moved approximately 7 percent in a single day, these leveraged bets collapsed, forcing the unwinding of positions.

In response, the BOJ announced it would refrain from raising rates during periods of market instability, sparking a strong rally.  Despite this, the underlying issue remains: the BOJ still needs to raise interest rates.

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