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

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.

Weekly Market Report: January 31st, 2025

Market Anecdotes

• POTUS followed through on his tariff threats, levying 25% on all Mexican imports and most Canadian imports along with a 10% levy on Chinese imports. Uncertainty with Inflation, supply chains, and negotiating parameters surrounding illicit drug trade and immigration remain.
• A big earnings slate last week, including several of the ‘Mag 7s’, took us to 36% of the S&P reported with blended bottom line growth of 13.2%, beat rates of 77% and beat margins of 5%. Blended revenue growth is currently at 5% with a beat rate of 63% and beat margin of 0.9%.
• Equity market valuations, which feed into long-term expected returns and drive the equity risk premium, are lofty by most measures with the S&P 500 at 22x, even when excluding several big technology names or looking at other domestic equity indices.
• The FOMC held steady as expected last week while the ECB and BoC both cut by 25bps. The ECB cut both the refi and deposit rates to 2.9% and 2.75% respectively while the BoC took rates down to 3%.
• Market expectations for the next rate cut in the U.S. are currently in June of this year.

Economic Release Highlights

• PCE inflation in December was in line with consensus for both headline MoM (0.4%) and YoY (2.6%) as well as core MoM (0.2%) and YoY (2.8%). PCE (0.7% vs 0.5%) was stronger than forecast while Personal Income of 0.4% was right in line.
• The Employment Cost Index for 4Q was in line with consensus expectation at 0.9% QoQ with an annual growth rate of 3.8%.
• The first estimate of 4Q U.S. GDP came in slightly short of forecast (2.3% vs 2.6%), slowing down from the final 3Q reading of 3.1%. PCE was strong and beat the spot forecast (4.2% vs 3.1%).
• Eurozone 4Q GDP cooled from QoQ 0.4% to 0% with YoY growth of 0.9%, slightly below forecast.
• International Trade in Goods saw the trade gap widen from $-103.5B to -$122.1B where import growth cooled from 4.3% to 3.9% MoM and exports fell from +3.3% to -4.5%.
• Consumer Confidence did not recover as forecasted (104.1 vs 106.3) from November and December readings of 112.8 and 109.5 respectively.
• Durable Goods Orders missed forecasts to the downside (-2.2% vs 0.8%) while Ex-Transportation (0.3% vs 0.4%), and Ex-Transportation & Gas (0.5% vs 0.3%) readings were mixed.
• The Case-Shiller Home Price Index in November increased 0.4% MoM and 4.3% YoY, both slightly ahead of the spot consensus but within the forecast range.
• Pending Home Sales in December fell 5.5%, well below the prior month (2.2%), spot forecast (0.4%), and forecast range while New Home Sales of 698k were slightly above the 672k forecast.

Weekly Market Report: January 24th, 2025

Market Anecdotes

• An interesting observation on U.S. versus European stocks is that, while the U.S. has dominated most of the past five years, European stocks have surged to begin the year, up 4.7% on a currency adjusted basis, while U.S. is up a still healthy 3%+.
• A one-year look back at large caps versus small caps shows the post-election surge in small caps faltered during December’s spike in interest rates while growth stocks’ dominance over value stocks, a consistent trend over the past 10yrs (ex/2022), has stayed firmly intact.
• Q4 earnings growth looks like it’s on a path to impress with small, mid, and “the 493” posting healthy numbers early in the season. FactSet is reporting blended earnings and revenue growth of 12.7% and 4.6% respectively.
• Keeping a close eye on Treasury auctions and bond yields last week showed a healthy appetite for UST on the longer end of the curve with interest rates staying relatively flat for the week.
• Markets are hopeful that fiscal policy takes the shape described by incoming Treasury secretary Scott Bessent where he noted tax policy being in line with historical averages and spending policy well above historical averages.
• D.C. policy indications last week included the announcement of a sizable $500b government AI investment initiative and 25% tariff indications for Columbia, Mexico, and Canada. Keys are ROI on AI and how inflationary/anti-growth impacts of tariffs feed into growth and financial markets.
• Global monetary policy is mixed with markets expecting FOMC rate cuts potentially beginning in May while the BoJ last week raised rates 25 bps (to 0.50%) as expected.
• The quarterly KC Fed Energy Survey responses are a good reminder that market prices, not regulatory red tape, is the primary driver of oil production where respondents noted average profitability breakeven of $64 but a price of $89 to substantially increase production.
• Bianco Research noted ‘off-exchange’ trading volumes recently surpassed the 50% level, but the rapid increase has been driven by retail speculation in sub-$1 stocks.

Economic Release Highlights

• January’s U.S. PMI (M,S) registered 50.1, 52.8 with manufacturing coming in above consensus and services below and overall composite cooling from 55.4 to 52.4.
• The January PMI release from the Eurozone and UK (C,M,S) came in slightly above consensus expectations at (50.2, 46.1, 51.4) and (50.9, 48.2, 51.2) respectively. China’s CFLP PMI for January of (50.1, 49.1, 50.2) softened versus the prior month and fell short of the spot forecast.
• December Existing Home Sales of 4.24M were up 2.2% MoM and are up 9.3% YoY, slightly more than consensus expectations.
• January’s final UofM Consumer sentiment reading was revised downward from 73.2 to 71.1.