Making Sense of Stocks at New Highs

If at the beginning of the year, I told you that the U.S. and Israel would start a war in the Middle East, which in turn would drive up oil and gas prices for at least two months and snarl up the global economy, you would likely presume that stocks would be in a full-on bear market. Sixteen weeks later, amid a fragile ceasefire and the U.S. blockade of the Strait of Hormuz, stock market indexes reached new highs. Say what?

It seems like a good chunk of the investor community has decided that with negotiations under way, the war will soon be in the rear-view mirror. If that’s the case, they argue, it would mean that oil prices would continue to drift lower (crude is already down by $25 a barrel), helping to push down prices at the pump by the end of the summer, though maybe not back to the pre-war level of about $3/gallon. I know what you’re thinking: What could possibly go wrong from here? The answer quite a lot, but that doesn’t mean that you should attempt to “sell before the next shoe drops”.

That said, now that tax season is behind us, it is an excellent time to rebalance your retirement account. As a reminder, rebalancing means that you are putting your allocation back into balance. So, if you were targeting 60 percent stocks, 30 percent bonds and 10 percent cash, and today those percentages are out of whack, either because you got freaked out amid the recent volatility, or one part of the account performed better than another, you need to move money from the overperformer into the underperformer. In a retirement account doing this quarterly or semi-annually is fine, because there is no tax liability associated with changes. In many retirement plans, there is an ability to auto-rebalance, which makes the process easier.

If you have a taxable brokerage account, it’s probably best to rebalance once a year, with one caveat. If you need access to money within the next 12 months, perhaps to make a house down payment, purchase a car or pay a tuition bill, you need to make sure that it is not invested in anything that can fluctuate (stocks, bonds, crypto) and instead, keep it in a safe savings, checking or money market account. In addition to the cash needs for a large purchase, you also need 6 to 12 months of living expenses in a high yield savings or money market account.

Fed Update: Kevin Warsh, President Trump’s nominee to succeed Jerome Powell as Federal Reserve Chair, will finally begin the process of interviewing with the Senate Banking Committee on April 21. This is the first step in gaining the chamber’s blessing, which is needed before Jerome Powell’s tenure ends on May 15. One wrinkle is Republican Senator Thom Tillis has said, and reiterated last week, that he won’t vote to confirm Warsh until the Department of Justice drops its investigation of Powell over his handling of the Federal Reserve building renovation project. The official withdrawal of the suit appeared to be on course, until U.S. Attorney Jeanine Pirro sent two of her deputy prosecutors to the Fed for a surprise visit last week. They were turned away and given contact information for the Fed’s legal team.

Eventually, it is likely that Warsh will be confirmed, though maybe not by the May 15 deadline. If that’s the case, Powell said that he would continue in the role as “chair pro tempore”, which “is what the law calls for. That’s what we’ve done on several occasions, including involving me. And it’s what we’re going to do in this situation.” The President again threatened to fire Powell, though Treasury Secretary Scott Bessent said that other Fed governors could serve as the interim leader. When Warsh does eventually take over, Powell may choose to stay on as a Governor until his term expires in January 2028.