Weekend Update, March 31st, 2025

“Tarriff”ied 1q25

Index, Sector & Asset Performance

This Monday morning, U.S. equities are pointing to further losses (S&P 500 > -1.2%) as “Liberation Day”, April 2nd, “Tariff Day” for President Trump approaches. After a mid-week rally last week. higher auto tariffs, sent the S&P 500 down -2% on Friday, -1.5% on the week, and -9.35% from its February 19th peak amid sharp declines from growth equities, cyclical, technology stocks and automakers. The S&P 500 ended the week at 5581. With one day remaining in March, the index is down -6.3% for March. The S&P 500 is on track for its largest monthly drop since September 2022. The growth heavy NASDAQ is down more, while the value bias Dow Jones is down less than the S&P 500.

The U.S. announced 25% tariffs on imported cars and certain auto parts from overseas, sending carmakers, including US ones, plummeting. The Magnificent 7, which peaked as a group last summer, fell -2.95%, led lower by Nvidia’s -6.8% decline as the AI trade has slowed and President Trump has threatened tariffs on foreign produced technology hardware. Seven of the S&P 500’s 11 sectors were down last week led by a -3.7% decline in technology and a -3.2% loss in communication services. Industrials fell -1.3% and health care gave back -1%. Four sectors saw gains on the week, led by the “boring”, slower growth, higher dividend groups as consumer staples rose +1.7%, energy added +0.8%, real estate rose +0.5% and consumer discretionary bounced +0.1%.

Equity market volatility picked back up last week as the VIX rebounded and ended at over 22.

Wednesday’s announcement of reciprocal tariffs could be set high for countries that are deemed to apply elevated duties or restrictive non-tariff barriers. These tariffs are set to be levied on top of already announced tariffs magnifying their negative demand shock and inflationary impulse.

Over the weekend, White House economic advisor Peter Navarro said tariffs would raise more than $6 trillion of revenue over the coming decade. In our team’s opinion, this is academic economic nonsense, and we suggest one read Mr. Navarro’s bio for his prior economic accomplishments. This figure implies an increase in the average tariff rate of at least +20 ppts, which would crush US consumer demand and spending and the US economy in the next few years offsetting any implied revenue capture from tariffs.

A summary of last week’s negative returns, ex-Gold, from FS Investments:

Last week’s sector returns from Goldman Sachs:

The 10-year Treasury yield is down another -5 bps to 4.20% for the wrong reasons, lower real growth outlook which has been on-going since peak growth last summer at the Biden IRA, sugar high peak. The bond market is now pricing three rate cuts this year from the Fed. The 2-year Treasury ended at 3.91%. High yield bonds declined -0.44% as spreads widened by +23 bps to their widest level since August 2024 when real growth peaked.

Economic Indicators and Earnings Commentary

Last Friday’s data ended the week on a down note. Personal income rose +0.8% (cons. 0.4%) but real spending was barely up (cons. 0.3%) after a drop in January, signaling mediocre Q1 consumption after a XMAS splurge.

Core PCE inflation was +0.4% in February, which was above expectations and contributing to a stagflationary backdrop. Sentiment surveys are declining fast, while a sharp increase in the savings rate YTD points to a potential consumer pullback. Initial jobless claims remain subdued, and a 0.9% gain in durable goods orders points to healthy business investment. The Citi Economic Surprise index is trying to turn up from negative territory.

Housing starts beat to the upside, though a slow rise in permits suggest housing activity is not set to recover anytime soon.

Fed regional business surveys say that activity is expected to decline.

Initial claims rose just 223k as labor market resilience remains the key to the business cycle.

On Wednesday, durable goods orders are expected to drop -0.5% in February following January’s rise. Core capital goods orders likely softened after spiking in January.

On Friday, February’s personal income and spending report is released.

FedEx guided their 1h25 lower on reduced TEMU shipping and pull forward of shipping volumes on pre-tariff ordering.

Global Market Trends/Commodities/Currencies

Oil rose, touching $70/bbl for the first time in 4 weeks. While sanctions against Russia and Iran will tend to push prices up, a trade war and higher domestic production work to keep prices lower.

Gold rose for the 12th time in 13 weeks this year. The price of gold has risen more than +17% YTD to over $3100/oz. Gold remains perhaps the world’s best performing asset, gaining another 2.15% last week.

Bitcoin looks like Nasdaq. Stuck in risk off for now.

The U.S. dollar continues lower albeit it at a slower pace right now.

This morning Asia traded down with weakness in US trading partners included Taiwan (-4%), Japan (-4%), and Korea (-3%) ahead of Wednesday’s scheduled round of tariffs from the US.

Oak Harvest Weekly Stock Talk

Stocks Just Dropped 10% – What’s Causing the Weak Start?

Week Ending 3/28/2025
(Cumulative Total Returns)

Past performance is no guarantee of future results. Indexes are unmanaged and one cannot invest directly in an index. They do not reflect any fees, expenses or sales charges.

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.