Weekly Market Report: March 21st, 2025
Markets last week took in the March FOMC meeting, fresh conflict in the middle east, and a relatively uneventful calendar of economic reports. U.S. equity markets managed to break the four week down streak, posting a gain of approximately 0.5% with emerging markets also managing a small gain of 0.10%. Developed international lost approximately 0.5% thanks to a USD that strengthened nearly 0.40%. There were no significant moves in commodity markets (+1.1%) where oil closed up 1.6% to $68.28/bbl.
Market Anecdotes
- Last week broke a string of four consecutive down moves in the S&P 500 with implied volatility in the options market suggesting the heavy storm clouds have passed by for the moment.
- Has the recent correction taken the air out of Mag 7 valuations? A look back at P/E suggests not quite yet with forward growth outcomes remaining to be seen.
- There were no surprises from last week’s FOMC and BoJ meetings where rates were held steady. The Fed updated their projections and will be slowing the pace of treasury QT runoff.
- The overhang of the upcoming April 2 tariff announcements remains the big drag on sentiment but also carries hope that they will spark a rash of negotiated settlements. We subscribe to the line of thinking that Trump will maintain a hard line until his approval ratings decline materially.
- Setting aside the risk of conflict escalation, last week’s U.S. bombing in Yemen could have a material impact on reducing global shipping costs and related inflation pressures.
- Research from Leuthold reminds investors of the contrarian nature of investor sentiment where the ten most negative years of sentiment were followed by an average return of 18.9% and the ten most positive years of sentiment were followed by an average return of 0.4%.
- Along the same lines, there is meaningful debate surrounding continued leadership of U.S. equity markets globally, supplemented by a January Goldman Sachs client survey suggesting consensus for continued leadership has rarely been stronger.
- Our weekly Cliff Clavin note shows New York, Illinois, and New Jersey as the top three states with the largest gambling degenerate populations as measured by revenue across the 38 legal states.
Constructive Asset Allocation Narratives
- Looking through what thus far has amounted to a routine market correction toward fiscal stimulus (tax cuts) and deregulation remains our baseline guide to risk positioning.
- The stock market or approval ratings will likely eventually discipline POTUS and trigger deals.
- The bond market looks past deepening fiscal deficits and unfunded tax cuts.
- U.S. monetary policy leaning slightly toward the incrementally more dovish side of the ledger.
- Fiscal stimulus and structural reform may boost growth in Europe, Germany in particular.
- Constructive fundamentals (growth and earnings) ultimately drive markets and remain sound.
- AI efficiencies are in the early innings of impacting productivity, inflation, and growth.
Cautious Asset Allocation Narratives
- Oversold conditions are mounting in U.S. equity markets but not yet at capitulation levels.
- A continuation of adverse trade policy into the summer would accelerate deterioration in sentiment and economic growth, representing a key risk to markets and the overall economy.
- Higher bond yields and tighter financial conditions in Europe pose risks to debt sustainability.
This communication is provided for informational purposes only and is not an offer, recommendation or solicitation to buy or sell any security or other investment. This communication does not constitute, nor should it be regarded as, investment research or a research report, a securities or investment recommendation, nor does it provide information reasonably sufficient upon which to base an investment decision. Additional analysis of your or your client’s specific parameters would be required to make an investment decision. This communication is not based on the investment objectives, strategies, goals, financial circumstances, needs or risk tolerance of any client or portfolio and is not presented as suitable to any other particular client or portfolio.