03/17/2025 Market Strategy
Give Change a Chance
Volatility, Sourced in Uncertainty Around Changes Made in Washington, DC with Expectations for More Changes to Come, Has Gripped Market Sentiment and Direction for Much of the First Quarter of 2025
Key Takeaways
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Central to this week’s market activity will likely be the Fed’s FOMC interest rate decision on Wednesday.
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We expect no change in rates from the Fed now but expect the details of the Fed Chair to be important to market activity in the second half of the week.
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Inflationary pressures cooled in February as the core CPI index advanced just 0.2% from January. As a result, the 12-month change in the core index slid to 3.1% from the prior January’s 3.3% reading.
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Value stocks continue to outperform growth stocks across the Russell market capitalization segments.
Some 64 days since the US Presidential inauguration, policy changes taking place have roiled markets on a day to day and week to week basis with little let up. Ironically, uncertainties of outcome that naturally come with any proposed or actual changes that are meaningful and affect a status quo that has become considered potentially detrimental to the future of the nation are not always welcome when they surface on the economic landscape.
In our view, it is important to recognize that as disruptive as change can feel day to day in its early stages it’s important to recognize that a successful outcome can mean “where we are today is not likely to be where we will be tomorrow.”
The process of addressing problems and making progress is seldom if ever a smooth and easy road to travel. Reality bites and bites hard when material changes are involved to address things such as a need for a change in the scale of government in size and cost that’s originally sourced in long accepted bipartisan practices.
Addressing issues now that concern both sides of the political aisle but too often over the decades have been treated as “cans to be kicked down the road” are upsetting to many constituencies belonging to both sides of the aisle. Addressing the issues of the national debt, bloated budgets and a broad array of government operations is ruffling long practiced levels of protocol in Washington as well as in centers of political power around the world.
Changes made and proposed thus far that might actually be positive for the nation present and future in a world that many believe has taken advantage of the largesse and latitude the US has given not only its trading partners but its allies for generations since World War II are front and center to the markets concerns at this time. Tariff regimes that have for decades placed US manufacturing and its employees at a disadvantage in global competition are front and center in the new administration’s efforts.
Bringing the context of history into the current debate suggests to us that some real progress could be made once cooler heads on all sides can prevail.
Skeptics might suggest a good outcome to all that’s taking place is unlikely. In our view, based on what is economically at stake failure to negotiate and arrive at resolution is clearly not to be tolerated.
Patience and acceptance in our view are key to considering what is taking place across a swath of issues financial, political, and social that have and continue to negatively impact the day to day lives of constituencies and the markets.
Recent cautious guidance by corporate managements when reporting Q4 results and ahead of Q1 reporting season results (which gets underway on April 11 when the big US banks begin to report) should come as no surprise based on present levels of uncertainty reflected in the markets and surveys of consumers.
It’s also important to recognize that cautious forward guidance by managements and cuts to anticipated earnings results by the analytical community ahead of earnings season have become standard practice since the Great Financial Crisis.
Perhaps it is the short term nature of what is termed “institutional memory” that discounts too easily the fact that the world weathered and eventually overcame the great financial crisis, the Greek debt crisis (and the threat many believed it presented to the European Union and Monetary Union), Brexit, Covid 19, the supply chain disruptions, and now a period of watershed technological innovation and political policy that respectively give consideration of a new and yet unexperienced world of technology and actions to address long put off issues tied to the government stateside and elsewhere.
In the week ahead, investors will ponder an array of diverse economic data stateside from advance retail numbers, manufacturing and services conditions, capacity utilization, imports and exports, employment, unemployment and home sales through Thursday. Friday’s calendar has no scheduled data releases in the US.
Central to this week’s market activity will likely be the Fed’s FOMC interest rate decision on Wednesday. We expect no change in rates from the Fed now but expect the details of the commentary from the Fed Chair on Wednesday afternoon to be a central focus for the week among investors and traders.
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