Foggy (Mountain) Breakdown

Weekly Newsletter: March 3, 2025

“The nearer your destination, the more you’re slip slidin’ away.” Whether investor sentiment, consumer sentiment, or gains for the year, there is a general feeling that things are sliding away. Investor sentiment, as measured by the American Association of Individual Investors (AAII) saw the highest bearish reading since near the market bottom in 2022. Today, the market is down roughly 5% from all-time highs, not the 20+% that occurred in 2022. Consumer sentiment figures, answering the broad question of “How you doin’?” have also dropped as worries that inflation may hang around longer than originally thought, weigh heavy. The global geopolitical environment has many concerned that whatever is/gets changed will not be good for the worldwide economy. Friday’s trading encapsulated the helter-skelter nature of investors today. As a White House photo op with Ukrainian President Zelinski went sideways, the markets erased their early gains and it looked like the week would end on a sour note. A furious rally over the last couple of hours pushed the markets up over 1.5% by the close. Flip, flop, and fly.

In a week with little in the way of “big” economic news, the political environment took center stage and investors began questioning the impact of tariffs on the US economy. Coming into this year, volatility was expected to rise as investors weighed the impact of AI, continued earnings, and economic growth along with the daily missives from the White House. What economic data there was, was on the “meh” side. Weekly jobless claims, a decent gauge of the monthly jobs report (due on Friday) continue to show a decent overall jobs market, even as claims rise dramatically in the DC region. Personal income and spending leaned a bit more bearish, as incomes did rise more than expected, but spending fell by more than expected, indicating consumers are pulling back. Whether that is from a Christmas hangover in spending or overall concerns about higher prices, persistently slower consumer spending is not a good thing for the economy. Once released, those figures pushed estimates for overall economic growth toward the zero line for the first quarter.

The spate of slower economic data has pushed interest rates lower as investors continue to assess and reassess the Fed’s ability and desire to cut interest rates. Originally, the thought was the Fed would cut early in 2025, but that got pushed toward yearend and some into 2026. Today, the rate cut is expected in June. The possibility is growing that the Fed cut comes without inflation reaching its target of 2%. The cuts would instead be in response to slower economic data. That has raised the fear of “stagflation” among investors. Low/slow economic growth combined with above-average inflation. IF that scenario does come to pass over the course of the year, bonds could still do well at the expense of equity investors.

The ”stick save” by the stock market on Friday left investors hoping that a more formal correction (a decline of 10%+) remains well into the future. It did not turn the markets higher on the week. Nvidia’s earnings were very good, but expectations were for spectacular, so tech in general traded lower. Tech pulled the broader market down, but the “value” side held up well, rising slightly on the week. International investing has (finally!) caught investors' attention. This comes as the dollar has declined a bit from the beginning of the year. International investors like to see a weaker dollar as it translates overseas gains into larger US dollars.

The coming week will be full of market-moving economic data, culminating in the jobs report on Friday. Plenty of tariff talk/actions may also move markets this week. Bonds and value stocks could be the place to hang out while the dust is flying.

The opinions expressed in the Investment Newsletter are those of the author and are based upon information that is believed to be accurate and reliable but are opinions and do not constitute a guarantee of present or future financial market conditions.