Weekly Market Report: May 2nd, 2025

Market Anecdotes

• Equity markets continued to rebound from the April tariff tantrum, stringing together nine consecutive positive days bolstered by earnings, labor market strength, and cautious optimism that global trade conflicts are beginning to move toward compromise.
• U.S. – China trade remained under a spotlight last week, moving from a stonewall response from China to reciprocal gestures as each exempted similar amounts of imports.
• One of the initial reverberations from the trade wars include U.S. Q1 GDP contracting 0.3% – vulnerable but not collapsing. The print was largely due to net exports detracting 4.83% but uncertainty also saw personal consumption fall to 1.8% from 4.0%.
• Another trade war ripple effect was evident in April new export orders which plunged to 43.1, a level associated with recessions and Trump 1.0 trade war.
• Bond market characteristics remain a key focus with modest credit spreads, a relatively friendly corporate bond maturity profile, and technical forces in treasuries all under close watch.
• Q1 earnings reports last week, which included most major technology companies, were encouraging with a blended bottom line at 12.8% and top line at 4.8%.
• Encouraging labor market indications came across last week including monthly payrolls, JOLTS, and ECI reports showing continued resiliency, a pillar of strength for investors and policy makers.

Bullish Asset Allocation Narratives

• Administration officials, bond markets, and public opinion have and will continue to push for expedient resolutions to trade disputes. Peak tariff panic is in the rearview mirror.
• A brief growth slowdown remains much more likely than sustained stagflation given the man-made nature of the trade crisis and ability to course correct/save face abruptly.
• Potential for swift course correction on tariff policies, possible fiscal stimulus (tax cuts), and likely business friendly deregulation encourages focus on the intermediate term horizon.

Bearish Asset Allocation Narratives

• Heightened and persistent uncertainty is translating to concerning indications in hiring intentions and negative sentiment risking declines in employment, capex, and consumption.
• Pressure on risk assets may persist until trade, monetary, and fiscal policy become more clear.
• Technical factors in U.S. bond markets (upward pressure on rates) present unique challenges for investors and overall cost of capital implications across the economy.

Weekly Market Report: April 25th, 2025

Marginally constructive tariff headlines, bolstered Fed independence, and encouraging economic data translated to a healthy week for global equity markets. Signs the U.S. administration is looking for an off ramp on trade tensions and the consummation of trade deals were welcomed by markets. Additionally, first quarter earnings reports are providing an encouraging backdrop for equity markets. Last week overall, we saw global equity markets close up 3%-5% while interest rates moved marginally lower. Reduced volatility also translated to smaller moves in the USD (+0.10%) and commodities (-0.25%).

Market Anecdotes

• While it’s been a volatile first 100 days of the new U.S. administration, stock and bond market vol fell last week thanks to improved tariff headlines and healthy earnings and economic reports.
• What was obvious to most seems to be slowly taking shape within the U.S. administration which is that an off ramp to trade tensions cannot come soon enough. Signs of progress with South Korea, Japan, India, and China were noted last week with investors hoping for more.
• News of reported discussions with Japan and South Korea regarding investment in Alaska LNG export facilities and Norwegian sovereign wealth payments to the U.S. confused markets, as a reminder to be hesitant to focus too much on headlines related to trade negotiations.
• UST auction data published last week revealed normal foreign demand but also a notable drop in demand for maturities under five years, which may signal waning foreign central bank appetite.
• Policy uncertainty may be translating to reluctance of non-U.S. investors to invest in U.S. assets, contributing to falling USD and UST demand. While the “Sell America” move is likely overdone, the weakening USD may have further to go simply on a mean reversion basis.
• FOMC members acknowledged economic risks and potential for job losses relating to tariff policies last week alongside a clear willingness to respond in June as data informs the trend.

Bullish Asset Allocation Narratives

• Certain administration officials, bond markets, and public opinion have and will continue to pressure POTUS away from growth adverse trade policies.
• Tariff policies are unlikely to persist in the intermediate or long term given the potential for swift reversal of tariff policies, fiscal stimulus (tax cuts), and business friendly deregulation.
• A brief growth slowdown remains much more likely than sustained stagflation given the man made and political nature of the current climate.

Bearish Asset Allocation Narratives

• Heightened and persistent uncertainty is translating to concerning indications in hiring intentions and negative sentiment risking declines in employment, capex, and consumption.
• The rare “trifecta selloff” (USD, U.S. equities, U.S. bonds) is challenging for portfolios and may persist until trade policy, monetary policy, and fiscal policy directions become clearer.

Weekly Market Report: April 18th, 2025

Market Anecdotes

• A quick look at valuations and the term premium reinforces relatively compelling equity market valuations
  overseas, ranging from 10.3x to 13.7x, versus U.S. markets at 19.8x but the rise in UST term premium has
  garnered attention.
• The trade war with China is thriving but negotiations with 14 countries are happening as well.
• China ordered all airlines to halt purchases of U.S. equipment and to not accept Boeing plane deliveries. The U.S. is taxing all Chinese owned or built ships for docking in the U.S. and ordered Nvidia to cease sales of H20 chips to China.
• The Administration blinked again last week, announcing a number of exempted products, primarily technology from Asia, but they also published notices of request for public comment on Section 232 investigations of pharma, semiconductor, and critical minerals trade.
• Two lawsuits have been filed, challenging POTUS ‘use of IEEPA for tariff powers.
• Hard data, backward looking by default, remains relatively sanguine while soft data is indicating turbulence across both consumers and businesses.
• Cliff Clavin noted that in June 1930, a petition signed by over 1,000 economists was presented to Hoover urging him not to implement tariffs, which he proceeded with regardless.

Bullish Asset Allocation Narratives

• Bond markets and public opinion have and will continue to enforce the “Trump put” as adverse economic policies persist.
• A slowdown or mild recession remains much more likely than sustained stagflationary given the man made and political nature of the current climate.
• Stagflationary tariff policies are unlikely to persist in the intermediate or long term after which fiscal stimulus (tax cuts) and deregulation may well resume the bullish narrative.

Bullish Asset Allocation Narratives

• Soft data is growing increasingly troublesome including slowing labor markets and negative business and consumer sentiment which have the potential to lead to a self-fulfilling decline in business spending and hiring as well as personal consumption.
• The rare “trifecta selloff” (USD, U.S. equities, U.S. bonds) in 2025 has left little room to hide from the overall risk aversion trend and is likely to persist until heightened uncertainty surrounding trade policy, monetary policy, and fiscal policy begins to clear up.
• A continuation of adverse trade policy and trade wars will accelerate deterioration in sentiment and economic growth, representing a key risk to markets and the overall economy.

Weekly Market Report: April 11th, 2025

Market Anecdotes

• Crazy gyrations in the bond market and the fear premium fed into a midweek decision to surrender to reality, announcing a 90 day pause (except for China) on the demolition day “reciprocal” tariffs sparking a torrential rally in equity markets. So, what’s in place today?
• Volatility and scope of this market dislocation is unprecedented with the world anxiously awaiting clarity and/or relief through diplomacy, legal/constitutional, fiscal, or monetary.
• The trade war is in full effect as both China and the EU announced retaliatory tariffs. POTUS responded to China’s retaliation with a return volley on Chinese imports, now totaling 125%.
• The Fed provided markets some much needed assurance that it stands ready to step in if needed to maintain market functioning and liquidity.
• FOMC meeting minutes released last week were unremarkable but comments regarding tariff impact on the inflation outlook including “heightened risks of unanchoring inflation expectations”, higher “hurdle to adjusting rates”, and higher inflation outlook are notable.
• First quarter earnings season kicked off on Friday with the Street looking for 7.3% YoY growth.
• Over the past couple of weeks where we’ve seen -11% in two days and +10% in one day, Cliff Clavin reminds investors the best move is no move as opposed to needing to get two moves right, both the sell and the buy.

Bullish Asset Allocation Narratives

• Capitulation levels became evident in bond markets last week while equity markets continue to look for
  clarity and progress toward trade normalization.
• An economic slowdown is widely expected as obstacles to global trade weigh on growth but the scale will be
  determined by the duration of the structural imbalances.
• The private sector (corporate, labor market, consumption) remains relatively healthy.
• Market volatility, poor POTUS approval ratings, or concessions will ultimately trigger trade deals.
• Stagflationary tariff policies are unlikely to persist in the intermediate or long term after which fiscal
  stimulus (tax cuts) and deregulation may well resume the bullish narrative.
• Depending on relative weights of tariff related inflation and tariff related sentiment/demand destruction,
  we may see a more rapid removal of restrictive monetary policy .
• Fiscal stimulus and structural reform are set to boost growth in Europe, Germany in particular.
• AI efficiencies are in the early innings of impacting productivity, inflation, and growth.
  Bearish Asset Allocation Narratives
• Risk aversion is likely to persist until heightened uncertainty surrounding trade policy, monetary policy, and
  fiscal policy begins to clear up.
• A continuation of adverse trade policy and retaliation would accelerate deterioration in sentiment and
  economic growth, representing a key risk to markets and the overall economy.
• A slowing labor market and negative business and consumer sentiment have the potential to lead to a selffulfilling
  decline in business spending and hiring as well as personal consumption.

Weekly Market Report: April 4th, 2025

Market Anecdotes

• The Trump Shock of 2025, due to announced tariffs on U.S. imports of nearly 22% were well beyond what markets were expecting, translated to a top 20 worst two days in market history.
• The unexpected and confusing logic/math from the CEA and subsequent retaliation from China tanked global equity markets and sent both bond yields and the USD sharply lower.
• Complicating things for the Fed, despite dire consumer and business confidence, the economy has yet to register a material slowdown as evidenced by the strong March jobs report and slowing but respectable GDP growth projections with Atlanta Fed at -0.8% and NY Fed at 2.6%.
• Fiscal policy narratives now include a potential tax hike on the top bracket to help fund TCJA extension and other promised tax cuts alongside skepticism on the current reconciliation deal.
• The legality and constitutionality of one single person making the decision to raise taxes is highly suspect. Expect swift and forceful challenges to the invocation of the IEEPA of 1977.
• The Cliff Clavin note of the week illustrates U.S. population migration from large cities to smaller/mid sized and from cold weather to warm is alive and well.

Bullish Asset Allocation Narratives

• Oversold conditions are present across U.S. equity markets, presenting a compelling buy the dip
  opportunity at some point soon.
• An expected and more material slowdown in growth has yet to materialize (corporate fundamentals, labor market, consumption) and the private sector is relatively healthy and not facing significant structural imbalances.
• Market volatility, poor POTUS approval ratings, or concessions will ultimately trigger trade deals.
• Stagflationary tariff policies are unlikely to persist in the intermediate or long term after which fiscal stimulus (tax cuts) and deregulation may well resume the bullish narrative.
• Depending on relative weights of tariff related inflation and tariff related sentiment/demand destruction, we may see a more rapid removal of restrictive monetary policy.
• The bond market, as evidenced by sharply falling interest rates, seems far more concerned with a potential slowdown in growth than with fiscal deficits, US debt ceiling, and unfunded tax cuts which lowers the cost of capital and smoothes the path to passing fiscal stimulus legislation.
• Fiscal stimulus and structural reform are set to boost growth in Europe, Germany in particular.
• Constructive corporate fundamentals which ultimately drive markets, remain sound.
• AI efficiencies are in the early innings of impacting productivity, inflation, and growth.

Bearish Asset Allocation Narratives

• Risk aversion is likely to persist until heightened uncertainty surrounding trade policy, monetary policy, and fiscal policy begins to clear up.
• A continuation of adverse trade policy and retaliation would accelerate deterioration in sentiment and economic growth, representing a key risk to markets and the overall economy.
• A slowing labor market and negative business and consumer sentiment have the potential to lead to a self fulfilling decline in business spending and hiring as well as personal consumption.