We have now experienced four months of a very bumpy ride in market returns.  In February, the S&P 500 fell 1.4% and the Nasdaq Composite declined 3.9%.  March: down 5.6% and 7.6%, respectively.  April: down 0.8% for the S&P 500 but a small (0.88%) gain for Nasdaq.  May: the S&P 500 jumped up 6.29% while the Nasdaq Composite surged 9.6%.

Of course, daily surges and declines were even bumpier at times, and even the intra-day trading showed some wild swings, as the markets tried to communicate with the Administration over the tariff policies, and each time they (in general) relented.

But there must be underlying drivers other than tariff announcements that impact whether the markets are generous or alarming.  The prospect of a major downturn is somewhat alarming; the fact that the Federal Reserve (rather than market pundits looking for attention) is taking the possibility of that happening seriously should give us all something to think about.

At the same time, one of the indicators that the markets could leap ahead is the amount of money sitting on the sidelines, presumably waiting to get back into what market analysts call ‘risk assets.’  Currently, according to the Investment Company Institute, investors have set aside a total of $6.948 trillion in money market funds, up from $6.066 trillion a year ago

All of this is interesting to watch, but ultimately, the markets will do whatever they want, driven more by emotion than logic or underlying fundamentals—in the short term.  In the long term, millions of people go to work every day to make their companies incrementally more valuable, day by day, week by week, year by year, and eventually, if the past is any indicator, those increasing values will be reflected in market valuations.  We will probably all forget how bumpy the ride is over time.

This article was written by an independent writer for Brewster Financial Planning LLC and is not intended as individualized legal or investment advice.