Stocks sold off again this week as tensions over trade tariffs mounted. The question in the mind of investors is whether this will come to a crescendo over the next two to four weeks or will it be part of a negotiating tactic deployed throughout the course of the remainder of the Trump Administration. If it is the latter, the stock market may have trouble digesting this reality. Nonetheless, it is times like these that provide opportunities, and we will remain patient to see what unfolds. Given the oversold short-term technical indicators, it is probably a little too late to sell unless the economic uncertainty accelerates or takes an unexpected turn. Bottom line, the market may continue to churn near these levels.
· Within the first paragraph of our Q1-2025 Newsletter written on January 11, we wrote that “a Trump Administration brings with it a much wider range of potential economic outcomes than that of a traditional executive branch. Even though his agenda may ultimately prove successful, the unorthodox nature of his approach may be accompanied by uncertainty as he bucks the system.” The markets are currently responding to this uncertainty.
· Baseball. During times of increased market volatility, we are reminded of a quote from famed investor Warren Buffett. “The stock market is a no-called-strike game. You don’t have to swing at everything. You can wait for your pitch.” With this in mind, two weeks ago we completed the rebalancing of portfolios where necessary, more often than not placing the proceeds in a bank sweep or money market. We also trimmed back or completely sold “low conviction” positions. As we slog through the current market environment, we will begin to redeploy that cash as perceived opportunities present themselves. Regardless, we never go “all out” or “all in,” preferring to focus on the long-term objectives of our clients and keeping them within mutually agreed upon parameters in regard to their asset allocation models.
· Aggregating (aggravating!) data. According to data compiled by Bloomberg and as reported by Natalia Kniazhevich, “the 16 trading sessions it took for the S&P 500 to tumble by this magnitude from its Feb. 19 high marks the seventh-fastest correction in records going back to 1929.” We will now tack on data compiled by Ryan Detrick of the Carson Group and as reported by Fred Impert which “shows the S&P 500 averages a 3.1% return one month after entering a correction. The benchmark’s return grows to 6.5% and 12% after three and six months, incrementally. A year out, the S&P 500 sees an average return of 14.7%, based on data going back to 1950. Detrick does note that this accounts only for corrections and not bear markets. However, at this time another bear market would be rare as it would represent “three bears in 5 years, something we’ve never seen before.”
· A preemptive Fed cut could be a positive catalyst for markets. As noted below, consumer sentiment has dropped appreciably as has the optimism of investors as well as the business community. Given the relatively benign inflation reports released this past week, should the stock market continue to move lower, don’t be surprised if the Fed cuts interest rates by a quarter point sooner than the market anticipates.
· Growth Scare or economic slowdown? The longer uncertainties regarding tariffs last, the chance of it being the latter grows.
It’s The Economy…”
· The University of Michigan reported that the Preliminary March Reading of Consumer Sentiment fell to 57.9 (-27.1% y/y) from a final February 64.7 as well as from a preliminary February 67.8. The preliminary March expectations component fell to 54.2 (-15.3% y/y) from a final February 64.0 and from a preliminary February reading of 67.3. Lastly, the preliminary March current conditions component fell to 63.5 (-23.0% y/y) from a final February 65.7 as well as from a preliminary February 68.7. According to the Survey of Consumers Director, Joanne Hsu, “while current economic conditions were little changed, expectations for the future deteriorated across multiple facets of the economy, including personal finances, labor markets, inflation, business conditions, and stock markets.” (Source, University of Michigan)
· Prices at the wholesale level as measured by the Producer Price Index remained unchanged during February after edging up 0.6% during January. Over the past year the PPI has risen 3.2%, down from a peak rate of 11.7% during March 2023. Energy prices fell 1.2% during February (-3.7% y/y) after rising 1.8% during January. Finished food prices jumped 1.7% during February (5.9% y/y) after gaining 1.0% in January. Excluding food and energy, the core PPI rose 0.2% during February (3.3% y/y), after rising 0.3% in January. Prices for Intermediate Goods (prices in the pipeline) rose 0.5% in February (0.3% y/y), after surging 1.0% in December. (Source, U.S. Bureau of Labor Statistics)
· The Consumer Price Index rose 0.2% during February (2.8% y/y), after rising 0.5% during January. The CPI has fallen from a y/y high of 9.1% during June 2022 but has risen from a low of 2.4% in September. Energy prices rose by 0.2% during February (-0.2% y/y) after rising 1.1% in January. Food and beverage prices rose 0.2% during February (2.6% y/y) after rising 0.4% during January. The cost of shelter rose 0.3% during February (4.2% y/y), after rising 0.4% during January. Excluding food and energy, the core CPI rose 0.2%, after rising by 0.4% during January. Over the past year the core CPI has risen 3.1% y/y, well below the peak of 7.6% in February 2022. (Source, U.S. Bureau of Labor Statistics)
· Mortgage Rates according to the Federal Home Loan Mortgage Corporation (FreddieMac), “the 30-year fixed-rate mortgage remained essentially flat from last week. Mortgage rates continue to be low versus the last few months, and homebuyers have responded. Purchase applications are up 5% as compared to a year ago. The combination of modestly lower mortgage rates and improving inventory is a positive sign for homebuyers in this critical spring homebuying season.” (Source, Federal Home Loan Mortgage Corporation)
Upcoming Economic Reports scheduled to be released this week include the following; on Monday, February Retail Sales and January Business Inventories; on Tuesday, February Housing Starts, February Industrial Production and February Capacity Utilization; and on Thursday, the Weekly Report of Initial Claims for Unemployment Benefits along with the February Index of Leading Economic Indicators (LEI).
Q4-2024 Earnings Season Has Begin To Wind Down. Nonetheless, several companies of note are scheduled to report, to include – General Mills (GIS), Lennar (LEN), Accenture (ACN), Micron Technology (MU), Nike (NKE), FedEx (FDX), Darden Restaurants (DRI), Jabil (JBIL) and Carnival (CCL).
General Disclosure:“This presentation is not an offer or solicitation to buy or sell securities. The information contained in this presentation has been compiled from third party sources and is believed to be reliable, but its accuracy is not guaranteed and should not be relied upon in any way, whatsoever. Fagan portfolio characteristics and holdings are subject to change at any time and are based on a representative portfolio. Holdings and portfolio characteristics of individual client portfolios may differ, sometimes significantly, from those shown. This information does not constitute, and should not be construed as, investment advice or recommendations with respect to the securities listed.
Additional information including management fees and expenses is provided on our Form ADV Part 2. The actual return and value of an account fluctuate and, at any time, the account may be worth more or less than the amount invested. Bond Investments are affected by interest rate changes and the credit-worthiness of the issues held in the portfolio. A rise in interest rates will cause a decrease in the value of fixed income positions. Past performance results are not indicative of future results.”
