The Week in Review: 03/10/25

“Common sense is the most widely shared commodity in the world, for every man is convinced that he is well supplied with it.” – René Descartes

Good Morning ,

What a week of carnage, let’s call it a “Tariff Tantrum” … and our economic news last week didn’t help. Investors are fearful.

The trade war has heated up after 25% tariffs for Canada and Mexico went into effect and tariffs on China increased by 10% to 20%, and the countries announced subsequent retaliatory measures.

President Trump later backed off his harsh tariff talk with some concessions for Canada and Mexico. The ambiguity of solid policy on trade has investors concerned.

Economic news hasn’t helped of late… Nonfarm payrolls were up 151,000; the unemployment rate ticked up to 4.1% from 4.0%; average hourly earnings were up 0.3%; and the average workweek stuck at 34.1 hours.

Growth concerns were further stoked by some soft earnings and guidance from the likes of Target and others. Target warned that price increases are likely, which may impact consumer demand and lead to lower growth in earnings and in the economy. Target's CEO also highlighted that the consumer has been cautious already.

Technicals were under pressure last week after the S&P 500 briefly dipped below its 200-day moving average. The Russell 2000 and Nasdaq Composite dropped further below their respective 200-day moving averages and further into correction territory.

Last week's economic releases also played into worries about the economy. The February ISM Manufacturing PMI showed a mix of decelerating activity, rising prices, and weakening employment for the manufacturing sector.

The ADP Employment Change Report for February was weaker than expected, yet the ISM Services PMI for February was stronger than expected.

Also, the February employment report was neither hot nor cold, but at the same time it wasn't just right for a market that needed to see stronger growth. Goldilocks, where are you?

The markets digested a preponderance of mediocre to poor news last week.

With all the pessimism, we do see some positives…

• The 10 Yr. Treasury yield has fallen from 4.81% in January to 4.304%, after seeing 4.21%.
  • This has some experts now calling for 3 Fed cuts in 2025.
  • Short term investors were enjoying 5.5% on the cash equivalents, now they are getting returns in the 3% range.
    • There is a bunch of cash on the sidelines!
  • We have endured a 10%+ correction in the Nasdaq, many high-flying popular stocks have been cut in half.
    • Many of the excesses we saw in December and January have been alleviated.
  • Market breadth has expanded to more than just the “Magnificent 7”.
  • Fear is at a historical high with the swift sell off, Bears dramatically outnumber Bulls in the latest AAII Survey.
    • Bulls are only 19.3% vs. a historical average of 37.5%.
    • Bears are at 57.1%... the consensus is usually wrong.
  • Tariffs have been implied to have some margin and not likely to be as harsh as first threatened.

Every year we see a significant market drawdown, often 10% or more.

Corrections are needed and can be healthy for the long-term trend of the Bull Market.

Rarely however, do we see such drawdowns with this velocity? Only 6 weeks ago we were celebrating new all-time highs in the markets.

Most interesting is what follows drawdowns as we look back in history… meaningful opportunities and recovery.

_{Source: Calamos Wealth Management}

Corrections are painful, but necessary.

The tariffs have investors fearful of the return of inflation, growth deceleration, and at worst a recession. We believe the downtrend in inflation will accelerate into 2H25.

We are making progress on the inflation front, albeit slower that the Fed would like. We get more critical data in the CPI & PPI this week.

Some areas could see growth slow, but many will not, and others should still prosper. It has always been about being invested in the right sectors for growth.

In our view… the economy remains strong, and earnings are solid.

Looking at the week ahead…

Have a wonderful week!

Michael D. Hilger, CEP^®

Managing Director
Senior Vice President, Wealth Management

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