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.

Weekly Market Report: March 28th, 2025

Market narratives last week were centered around fresh inflation data, negative impacts of tariffs, and the health of the U.S. consumer. Financial markets saw an increase in equity and bond market volatility due to heightened concerns surrounding inflation, growth, and U.S. government policy. Global equity markets closed down approximately 1.5% leaving year to date returns on the S&P 500, EAFE, and Emerging markets at -5%, +9%, and +5% respectively. Interest rates closed the week largely unchanged after a mid-week rise was offset by a safe haven bid on Friday. There were no major moves across currency and commodity markets where oil closed up $1 to $69.36.

Market Anecdotes

• A weakening outlook for the consumer and persistent inflation are clouding the outlook as soft consumer spending and labor markets are more in focus than tariff policies.
• Upward inflation pressure may be shifting from seasonal forces to tariff impacts which lie counter to slowing growth from a monetary policy perspective, laying the groundwork for some closely watched monetary policy and FOMC decisions going forward.
• 2025 is seeing a rare occurrence of sizable differences in stock market performance between U.S. and ROW. Alpine Macro highlighted three broad reasons including a reset of post election expectations, U.S./Eurasia fiscal policy divergence, and valuations.
• Apollo’s Torsten Slok noted registered border encounters have fallen to nearly zero in February which will inevitably translate to a significant decline in monthly job creation. Potential implications include lower breakeven payroll levels and labor shortages/wage inflation.
• The BPC noted extraordinary measures employed by the Treasury to avoid breaching the $36.1t debt ceiling can work until sometime between mid-June and October depending on tax receipts.
• Our weekly Cliff Clavin note comes from a Bloomberg piece highlighting nearly all stock market gains come from holding stocks overnight versus trading action from open to close.

Bullish 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.
• Market volatility, poor POTUS approval ratings, or concessions will ultimately trigger trade deals.
• The bond market is looking past deepening fiscal deficits, US debt ceiling, 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) which ultimately drive markets, remain sound.
• AI efficiencies are in the early innings of impacting productivity, inflation, and growth.

Bearish Asset Allocation Narratives

• A weakening U.S. consumer is taking shape which can lead directly to labor market weakness.
• Oversold conditions are mounting in U.S. equity markets but not yet at capitulation levels.
• A continuation of adverse trade policy would accelerate deterioration in sentiment and economic growth, representing a key risk to markets and the overall economy.

Weekly Market Report: March 21st, 2025

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.

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