Weekend Update, March 17th, 2025
Is the bad “Super Bowl halftime show” stock correction over?
Index, Sector & Asset Performance
On the back of on-going and increasingly fluid Trump Administration tariff policies, the three major stock indices were down -2.3%-to-3.1% last week. A fresh batch of tariff threats from President Trump included a proposed 200% tariff on alcoholic beverages from Europe and 25% tariffs on steel and aluminum imports This was the 4th straight week that the S&P 500 ended red, temporarily sending the index into correction territory, >-10%. The week would have been worse, down around -5%, had the markets not rallied considerably, the biggest up day of the year (Russell 2000 +2.53% | Nasdaq+2.49% | S&P 500 +2.13% | Dow +1.65%) on Friday into the weekend. This marked the seventh fastest correction ever, taking just 16 sessions to materialize.
Source: Bloomberg
Energy and utilities sectors of the S&P 500 rose last week. Consumer staples had the largest drop, sliding -4.3%, followed by a -3.7% drop in consumer discretionary, a -3.5% decline in communication services and a -3% decrease in health care.
It is not unusual for stock corrections as the average year has a drawdown of -13-15% at least once. Did we see a -10% drop in less than 20 trading days, the 5th fastest correction in history coming? No. But here’s the data from Seth Golden showing, historically, swift and fast down, has been followed by very profitable investment returns over the next 3,6, and 12 months.
Source: Fundstrat, Bloomberg
The S&P 500 trades at 19.9x forward 12-month earnings estimates. The 5- and 10-year averages are 19.8x and 18.3x, respectively.
Over the weekend, in a surprise move, China announced a new plan to increase incomes and spending. The plan will include measures to increase the birth rate. (We are looking forward to seeing this “reward” system structure). Chinese equities continued their positive YTD moves on signs the government would look to stimulate consumption.
Nvidia’s annual GTC conference is this week. Nvidia’s stock has bounced into the event for AI developers. This stock action is normal, as is a rally after.
U.S. interest rates were flat last week. The 10-year Treasury yield finished at 4.31%, right at its 1-year average, while the 2-year yield, most controlled by the Fed, ended the week at 4.02%. Traders now see around 65 bps of rate cuts in 2025 with the first cut most likely to come in June.
Economic Indicators and Earnings Commentary
Inflation was slightly lower than expected in February with the consumer price index rising 0.2% from the previous month and 2.8% year over year. Analysts predicted increases of 0.3% and 2.9%, respectively.
The University of Michigan’s preliminary consumer sentiment index fell to 57.9 in March from 64.7 in February, compared with expectations for a much smaller decrease to 63.0.
A host of economic data is expected today including, February retail sales, NY Fed’s Empire, Manufacturing Survey, final business inventories for January, and the NAHB Housing Market index. Housing starts and industrial production are released on Tuesday and existing homes sales are released Thursday. Later this week, on Wednesday is the FOMC’s announcement and Summary of Economic Projections along with Chair Powell’s press conference. The Fed is expected to keep interest rates unchanged at this meeting with the fed funds rate at 4.25%-to-4.50% for the second consecutive meeting. The FOMC will likely reiterate that it is not in a hurry to deliver new interest rate cuts and intends to remain slow until policy changes under the new administration become less volatile and uncertain and the outlook becomes clearer. The old dot plot’s projection had 50 bps worth of rate reductions this year, but the current market expectations have now moved to 3 cuts for 2025, beginning in June. Recall, there is nothing predictive about this data set as Fed Funds Futures has little to no forward accuracy in predicting 1-Fed moves, or 2- forward interest rates, beyond the 5-7 days in advance of a Fed meeting. Earnings reports this week are expected from Accenture (ACN), Nike (NKE), Micron Technology (MU) and PDD Holdings (PDD).
Global Market Trends/Commodities/Currencies
Crude prices were flat, finishing at around $67/bbl as demand uncertainty capped prices.
U.S. crude production rose to 13.6 mmbpd, near the all-time high from Dec. Higher supply and lower demand have driven the average retail gasoline price to $3.08/gallon. Gasoline prices have not been below $3/gallon since 2021.
Steel prices have soared 36% since late Jan on tariff impacts.
Gold cleared $3,000/oz intraday for the first time ever.
Bitcoin experienced a decline, falling toward $83k on lower risk tolerance.
The U.S. dollar continues its decline toward 103.
Oak Harvest Weekly Stock Talk
Week off due to vacation
The preceding discussion is for informational purposes only. Investing involves risk and no reference to any security listed above should be considered a buy or sell recommendation. Past performance is no guarantee of future results. Advisory services are provided through Oak Harvest Investment Services, LLC, a registered investment adviser.
