Spring has officially sprung and as March Madness and the Final Four dribble to a close, America’s sports fans turn their attention to one of the greatest contests of all time, and perhaps the most picturesque! With the azaleas popping, dogwoods blooming, birds a chirping (though sometimes piped in), and yellow flags flying, Augusta, Georgia will play host to the 89th Masters Golf Tournament this April. Long known for its clean, white cladded caddies and challenging fairways, a ticket to the house that Bobby Jones built is a bucket list for many golfers and non-golfers alike.
Despite the recent allure of “fights” between Canada and the US that seem to break out into a hockey game, all eyes will be on this fight to the finish to claim the illustrious green jacket (and the right to select next year’s tournament dinner). It is true that Augusta takes no prisoners and even the most experienced golfers have succumbed to her undulating design and unpredictable greens. Similarly to the notorious “Amen Corner” (which refers to holes 11, 12, and 13,) an especially difficult stretch of the course with the potential to drastically alter a golfer’s score; we too have reached a particularly pivotal point in the outlook for the US economy.
“Animal Spirits” tee’d off the 4th quarter enthusiastically as expectations of a more pro-business, regulatory-friendly administration fueled markets higher. However, as Q1 came to an end, overall uncertainty behind tariff decisions and the next round of layoffs by DOGE, combined with a looming deficit and persistently stubborn inflation, ultimately culminated with the market peaking on February 19th and sending many indices into correction mode, including the S&P 500 (-4.3% YTD). Quickly enough, 2024’s top seeds (i.e. the Magnificent 7) soon became as popular as a double bogey on 18. This turn of events was also one of the quickest reversals in history, nearly on par with the short-lived PGA vs. LIV conflagration. Fans can sure be fickle!
Growth stocks, which had been leading Value stocks for years, took it on the chin, as the market saw a rotation into more defensive lay ups (Russell 1000 Growth was down -10.0% vs. +2.8% for the Russell 1000 Value). International markets also had their day in the sun, finally (MSCI EAFE rose 9.5% YTD) as we saw a decline in the dollar and a reversal of the so-called U.S. exceptionalism trade. Europe’s economy struggled with austerity measures coming out of COVID, whereas the United States fiscal budget exploded with stimulus. Now the momentum is swinging, as European countries unify and increase government spending (a driver of GDP) to supplement the retreat of economic and military aid from the “watchdog” of Uncle Sam. Their national and more specifically, energy security, depends on it as showcased by the performance of European aerospace and defense companies which have bested US Growth stocks by over 100% since 2022 (Source: JP Morgan). With Europe putting on all cylinders, this year’s Ryder Cup could prove to be an interesting match-up and Rory’s ready for the challenge!
One thing that is for certain, is that uncertainty still exists. As the quarter ended, there was much anticipation around President Trump’s impending “Liberation Day” regarding tariffs, the source of much of the volatility experienced in the stock and bond markets year-to-date. The on again, off again rhetoric and lack of clarity served to decrease business and consumer confidence, which directly fed into performance – just like athletes lining up for a shot, under the direction of a loyal caddie, the market thrives on proper information and forward guidance to make thoughtful and unemotional decisions.
The outcome of the tariff debacle remains unclear, and while it will most likely lead to further negotiations, in the short run it stifles the Fed’s outlook and ability to move. While these tariffs are aimed at levelling the playing field much like a handicap in golf, retaliatory measures and reduced foreign Treasury purchases could serve to push rates and deficits higher. Inflation is also still very much on the Fed’s radar and a trade war could make things worse. Unlike at Augusta, where time stands still and you can purchase a signature egg salad or pimento cheese sandwich for $1.50 and a beer for six bucks, the majority of Americans continue to feel the pain of higher prices. On the other hand, if prices remain high, they could eventually choke the consumer into a recession, a possibility highlighted by the recent increase in projected rate cuts (many Wall Street pundits have upped their forecast to three cuts from two). This year is sure to be a real nail biter up until the final stroke, if only Jim Nance (who I had the privilege of meeting last summer) was here to commentate the play by play.
Closing Thoughts
Golf, like investing, can be frustrating at times. People often comment, “there is a reason it is a four-letter word.” Investing is filled with hazards that must be navigated and opportunities to take the shot. And just like golf, there is a reason we have multiple tools in your bag (portfolio). A long-term strategic allocation and diversification is key to drive, chip and putt your way to success (and to the safety of Butler Cabin). Just remember, no matter how long the fairway or how shaggy the rough, over time, it will always be green. Every day is a chance at a Birdie, but we strive to be par for the course.
Until next quarter, back to you, Dottie!