Weekly Market Report: March 14th, 2025

Market Anecdotes

• Inflation and growth impacts of tariff policies are key concerns for corporations and markets. While recession calls are growing (again), a more convincing widening of credit spreads, fall in corporate earnings, and rally in treasury markets is needed for us to join the call.
• Policy uncertainty continued last week with a barrage of POTUS announcements, roiling stock markets and taking effective tariff rates near 1930’s era Smoot-Hawley levels.
• Productive meetings between Canada and U.S. trade representatives happened on Thursday, moving both sides closer to striking a compromise.
• Economic reports on inflation, jobs, and sentiment last week included soft inflation, slowing labor markets, and deteriorating business/consumer sentiment.
• Lower oil prices, due to reduced growth expectations and increased supply will act as a tax cut to consumers and deflationary to the overall economy. The stock market would certainly applaud the former but not the latter.
• Chinese stocks staged a nice rally last week on a NFRA pledge to focus on stimulating consumer demand.
• 2025 has seen the worst USD performance since 2008, down over 3%, due to a combination of moderating growth outlooks, tariff policies, and narrowing sovereign interest rate spreads.

Constructive Asset Allocation Narratives

• Fundamentals (growth and earnings) ultimately drive markets and remain sound. 
• The stock market or approval ratings will likely eventually discipline POTUS and trigger a flip from “spinach” to “candy”.
• U.S. tax cuts will help offset the growth/economic headwinds from tariffs.
• 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.
• AI utilization may translate to material gains in global productivity and lower prices.

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.

Weekly Market Report: March 7th, 2025

Last week markets took in a healthy dose of policy uncertainty with on and off again tariff news driving risk appetite while most economic reports came in largely as expected. Dovish leaning narratives from Fed policy makers managed to calm markets slightly but U.S. equity markets closed the week down 3.1% while developed international (+2.4%) and emerging markets (+2.9%) both managed healthy gains thanks in large part to a notable 3.5% decline in the USD. Bonds didn’t fare much better as interest rates ticked slightly higher and the yield curve steepened leaving the 10yr UST yield at 4.32% while credit spreads widened again marginally on the week, from 287 to 299.

Market Anecdotes

• Markets are in the process of absorbing material changes in trade policy and a rare attempt at addressing the size and scope of government, both resulting in a dense pack of policy fog.
• The chaotic trade war on Canada, Mexico, and China was a key driver behind markets last week resulting in a fall in equity markets and a rally in bond markets – two markets that clearly remember the economic impact of 1930’s era Smoot Hawley Tariff Act.
• Last week’s jobs report revealed solid job creation, a slight and unexpected uptick in unemployment to 4.1%, and a decrease in federal workers but not to the extent expected in the March jobs numbers.
• Germany’s response to U.S. policies is gaining market attention with a lift of the debt brake and budget plans to spend $500b on defense alone plus significant infrastructure spending.
• The NPC meeting last week set China’s economic growth target at “around 5%” and fiscal stimulus measures
  that met market expectations of an increase but not substantially enough to meaningfully accelerate economic activity.
• The FOMC gave a dovish nod toward softening labor markets and inflation dynamics as potentially leading to easing policy but also the need for more clarity on fiscal/trade policy impacts on both. Powell also downplayed recent sentiment and inflation expectation surveys.
• The ECB met market expectations with a 25bp rate cut to take refi and deposit rates to 2.65% and 2.5% respectively

Asset Allocation Narrative

Oversold conditions are mounting in U.S. equity markets but not yet at capitulation levels. Continuation of strong fundamentals and a flip from “spinach” to “candy” from the FOMC or Pennsylvania Avenue should, at some point, get things back on track toward a constructive intermediate term view on risk assets. An exogenous shock or increasing consumer/business sentiment impacting spending remain key risks to our constructive intermediate outlook on equity markets.

Weekly Market Report: February 28th, 2025

Market Anecdotes

• Positive short-term stock/bond yield correlations and interest rate call/put skew are suggesting markets at this point are more concerned with tariffs and growth than fiscal imbalances. However, a recession in the U.S. remains a non-consensus call.
• A rally on the long end of the yield curve pushed the 3mo/10yr slope back into inversion last week as markets traded on a slowing growth narrative with an implicit message to the Fed that some easing might be warranted but emerging tariff price pressures may complicate things.
• Fourth quarter earnings season is now largely complete. Highlights include very firm 17.8% earnings growth (led by financials), historically average beat rates and margins, more than usual downward guidance, and the runaway hot topic was tariff policies.
• The U.S. tariff reprieve on Canada and Mexico following concessions earlier this month were back in the headlines last week with POTUS indicating 25% on the former and 10% on China may be coming this week. Markets and businesses remain unclear on specific details at this time.
• U.S. debt/GDP, up from 76% in 2017 to 100% today, are projected to increase to 126% by 2034, highlighting a serious problem in need of serious solutions which the proposed budget seems to fall short, even with aggressive assumptions. Bond markets seem fine but are watching.
• The HOR budget resolution bill is projected to add $2.8t to the deficit by 2034 with Senate modifications (higher tax cuts, reduced spending cuts) taking that figure to -$3.5t.
• A remarkable shift in U.S. foreign policy took shape last week with Ukraine walking away from a U.S. negotiated surrender of territory, a rare earth minerals deal, and emerging mobilization of European nations.
• BCA suggested recent leadership in European equities is driven primarily by near term economic surprises and cheap valuations rather than earnings or growth fundamentals but foreign policy developments and the debt that comes along with them may also be a factor.

Economic Release Highlights

• January Headline and core PCE grew 0.3% MoM in January with YoY readings of 2.5% and 2.6% respectively, both generally in line with estimates.
• Personal Income grew more than expected in January (0.9% vs 0.3%), following 0.4% growth in December and MoM PCE contracted by 0.2%, more than the 0.2% growth expected.
• Consumer Confidence fell from 104.1 to 98.3 in February, below the spot consensus 103 and the forecast range of 100 to 104.5.
• Durable Goods Orders jumped 3.1% in January, well above consensus of 1.9% and toward the high end of the range. Core Capital Goods grew 0.8%,well ahead of the 0.5% spot consensus.
• New Home Sales in January of 657k was in line with the consensus range of 630k to 705k. Pending Home Sales Index fell 4.6%, below the forecast of -1.2% and consensus range of -3.3% to 2.4%.
• The Case-Shiller Home Price Index came in at forecast, up 0.5% MoM in December and 4.5% YoY

Weekly Market Report: February 21st, 2025

Market Anecdotes

• Softening sentiment and cooling growth expectations factored into some equity market consolidation last week where we’re seeing soft data get back in sync with hard data overall.
• Market internals year to date continue to show signs of broadening and improvement in breadth with mega cap U.S. growth stocks lagging value and international.
• The peak of 4Q earnings reports was last week and the backdrop remained encouraging with healthy top and bottom-line growth alongside a broadening of improved fundamentals.
• Outperformance of European equities over the U.S. has triggered debate over the drivers and the
  persistence of the relative performance outcomes and whether we’re seeing yet another of many head fakes courtesy of international developed markets.
• Japan’s economy is experiencing a notable jump in growth (2.8% Q4 QoQ AR) and persistent price pressures stemming from a strong labor market and wage inflation not seen since the 1990’s. Hawkish and BoJ are two words rarely seen in the same sentence until very recently.
• The 114bps increase in 10yr bond yields from the mid-September initial FOMC rate cut to the January 10th pivot to a ‘wait and see’ approach has given back 35 bps while short rates have remained on ice.
• In the U.S., a “heads I win, tails you lose” narrative is currently underpinning some BCA strategists views where accelerating jobs/growth will lead to problematic higher interest rates while decelerating growth will lead to a decelerating labor market.
• Strategas noted the liquidity boost coming from the Treasury general account which, during debt ceiling impasses (2011, 2023), is drawn down to maintain operations. The TGA stands at $790b, down from $821b last year but the drawdown is expected to ramp up in the coming weeks

Economic Release Highlights

• February flash U.S. PMI declined 2.3 points from January on the composite to 50.4 due to a miss on Services (49.7 vs 53.0) and an in line reading on manufacturing (51.6 vs 51.3).
• Eurozone and UK flash PMIs (C,M,S) were largely unchanged at (50.2, 47.3, 50.7) and (50.5, 46.4, 51.1) respectively with improvements in manufacturing offset by declines in services.
• Housing Starts (1.366M vs 1.397M) and Permits (1.483M vs 1.470M) in January were generally in line with
  expectations.
• Existing Home Sales (4.08M vs 4.16M) in January were in line with forecasts, falling 4.9%MoM and up 4.8% YoY.
• The Housing Market Index declined in February from 47 to 42, missing the consensus estimate of 47 and coming in below the forecast range (45-48).
• The final UofM Consumer Sentiment reading was revised down from 67.8 to 64.7 and 1yr inflation expectation remained elevated at 4.3%.

Weekly Market Report: February 14th, 2025

Market Anecdotes

• We’re now 77% of the way through 4Q earnings reports for the S&P 500 with impressive top and bottom line growth of 16.9% and 5.2% respectively. Beat rates and beat margins of 76% and 7.3% are generally in line with historical averages.
• The bullish camp remains focused on tax cuts, deregulation, a strong consumer, a healthy economy, and the burgeoning AI boom, the latter of which Bespoke’s weekend research note offered an interesting parallel to the internet boom of the 1990’s.
• A hot Inflation report came and went while tariff taxes again grabbed headlines but their categorization as ‘reciprocal’ and slightly more diplomatic ‘negotiable’ tone rather than ‘unilateral’ tone calmed markets.
• The 10yr UST yields have fallen from over 4.8% back toward 4.4% but with the average outstanding mortgage rate at 4% and the current 30yr mortgage rate at 6.8%, borrowers are still faced with some uphill math when looking at buying a home.
• While healthy payrolls and unemployment rate, emerging signs of a slowing labor market warrants careful attention as evidenced by some alternative survey measures.
• Given the notable policy uncertainty, Bespoke noted last week that starting the week after the election, the S&P 500 has remained in a relatively tight trading range of less than 10% which ranks in the 13th lowest percentile of 100-day trading ranges since 1993.
• An amazing technical note on growth stocks is that the NASDAQ 100 has closed above its 200 dma for 485 consecutive days, its second longest such streak on record.
  • The Federal budget deficit of -7% is under a microscope and last week saw the initial HOR proposal which outlined extending the 2017 tax cuts accompanied by spending cuts over $1tn.
• Treasury auctions last week were mixed with a strong 3yr auction Tuesday followed by a weak (and CPI print impacted) 10yr auction Wednesday.
• Seven Fed speaking engagements and Powell’s testimony to the Senate Banking Committee offered no material updates of note, echoing the FOMC is in no hurry to adjust rates, downside risks to the labor market have faded, and the neutral rate has risen meaningfully.

Economic Release Highlights

• Headline and core CPI for January registered annual readings of 3.0% and 3.3% alongside MoM readings of 0.5% and 0.4%, above consensus expectations across the board.
• Headline and core PPI for January registered annual readings of 3.5% and 3.6% alongside MoM readings of 0.4% and 0.3%, above consensus expectations for all except the core MoM reading..
• Retail Sales in January missed expectations for the headline (-0.9% vs -0.1% and ex-vehicles (-0.4% vs 0.3%) readings while ex-vehicles & gas fell 0.5% following December’s 0.5% gain.
• Industrial Production grew 0.5%, beating the spot consensus forecast of 0.3% and above the high end of the range (0.1% to 0.4%).
• The NFIB Small Business Optimism Index for January registered 102.8, down slightly from December’s 105.1 and below the consensus expectation of 104.7.

Weekly Market Report: February 7th, 2025

Last week markets took in a large slate of 4Q earnings reports, a full economic calendar, and several policy maker narratives on the speaking circuit. Some of the mega cap names (AMZN, TSLA, GOOGL) lagged last week pulling growth stocks down slightly more than value stocks. U.S. equity markets were down slightly for the week while developed international (+0.47%) and emerging markets (+1.12%) notched respectable gains thanks in part to a slight decline in the USD of 0.30%. Oil closed the week down 2.1% but the broader commodity markets (+0.23%) were up with healthy rallies in metals, both industrial and precious as well as grain contracts.

Market Anecdotes

• Last week took the S&P 500 to 62% of the way through fourth quarter earnings reports with blended top and bottom-line growth of 16.4% and 5.2%, respectively. Beat rates and margins have been as expected with earnings but revenues have been below the norm.
• Tariff tax narratives again factored negatively into financial markets with Trump announcing he plans to issue more tariffs this week with most studies estimating a minor reduction to U.S. GDP of 0.5% (announced tariffs only) and a boost to CPI of 0.7%.
• Inflation expectations of the financial markets and consumers are closely monitored by the FOMC through various financial market metrics and survey data, both of which have risen due to growth expectations, tariff risks, and stubborn prices.
• UST Secretary Bessent spoke out last week against tariffs and reiterated the administration’s focus on lowering the 10yr UST yield, reigning in fiscal deficits to 3%, increasing oil production by 3 mbpd, and generating 3% GDP growth.
• The Fed speaking circuit was packed last week with thirteen appearances and a clear tone of ‘wait and see’ given the healthy labor market and above target inflation at this time.

Economic Release Highlights

• January Payrolls (143,000 vs 168,000) were slightly below forecast but within the consensus range of 125,000-225,000. The Unemployment Rate fell one tick to 4.0%. Average Hourly Earnings were above forecast for both MoM (0.5% vs 0.3%) and YoY (4.1% vs 3.8%) readings.
• The December JOLT Survey registered 7.6M openings, below the spot forecast of 8.0M and the consensus range of 7.8M-8.14M.
• January ISM Services Index fell short of the spot forecast (52.8 vs 54.0) and toward the low end of the consensus range.
• January ISM Manufacturing Index came in slightly above the spot forecast (50.9 vs 49.5) but was within consensus range.
• The February UofM Consumer Sentiment fell from January’s 71.1 reading to 67.8, well below the spot consensus estimate of 72.0 and the forecast range of 69.0-73.1. One year inflation expectations surged from 3.3% to 4.3% on the month.