Uncertainty takes toll on consumer confidence, economic growth and the markets.
It’s officially springtime in Boston and, somehow, I am still wearing my winter coat because, baby, it’s cold outside. My lawn is a depressing shade of yellow brown, and the trees lining Commonwealth Avenue are bereft of buds. My radiators at home and in the office are still fired up, chortling at me as if they knew that I hoped they would be dormant by now.
Like the weather in New England, the markets and economic data are in a chill, trying to make sense of this new world and it’s a struggle. Anticipation has been replaced with angst, hope with fear and confidence with frustration as the president’s administration hits the reset button in ways that are shaking consumers and businesses.
For example, the Conference Board’s consumer confidence report dropped 7.2 points in March to 92.9, several points lower than the 96.0 expected. This reading is a 12-year low, and the commentary was riddled with fears over economic and policy uncertainty.
Synchrony Financial, which issues credit cards in partnership with retailers, echoed this theme, reporting they are seeing belt-tightening measures among financially healthy customers, although repayments remain on track so far. Meanwhile, a report released this morning on personal consumption showed a continuation of January’s sluggish spending results in February, even as the Federal Reserve’s preferred inflation gauge spiked higher, showing core inflation now growing at a 2.8% rate year-over-year.
In other economic news, the S&P Global U.S. Manufacturing reading for March showed a contraction in growth, though the Services Sector gauge was better than expected. The Philly Fed Services Sector Survey found the six-month outlook of services firms plunged in March, marking a new cycle low—it’s now near where it was during the Covid pandemic. While the final release of GDP was clocked at 2.4% annualized growth amid a robust increase in corporate profits, economists were busy cutting back on estimates for the first quarter of 2025 against the backdrop of uncertainty. At this point, estimates range from -1% to +1% and calls for a shallow recession are building. We are not in that camp, but concede the risks are rising and shallow growth is likely assured.
Tariffs continue to be a dark cloud over the markets, but the sky may clear up next week when they finally go into effect on April 2. The administration has promised that there will be clarity on who and what exactly is getting targeted by then. In the latest twist, the president said he would slap 25% tariffs on automotive imports to the U.S., in what is almost a worst-case scenario for carmakers. The effects could be felt within months by consumers, with car prices almost certain to rise (by 11% to 12% according to some estimates), while the choice of cars on offer to U.S. buyers could shrink. The head of the United Auto Workers union, however, hailed the tariffs as “a major step in the right direction for autoworkers and blue-collar communities.”
On the Fed-speak front, a few officials have offered commentary clarifying expectations for policy this year following the March rate decision. Atlanta Fed President Raphael Bostic, for example, said he only expects one rate cut this year. This is contrary to the median forecast of two additional cuts in the Summary of Economic Projections (SEP). Speaking to Bloomberg Television in Atlanta, Bostic said he anticipates the impact of tariffs to be temporary and that further policy relief may prove appropriate later in the year but to a limited degree. “Given how rapidly policy changes from week to week and month to month, it’d be very difficult for me to, with any confidence, take on board things until we’ve actually seen them put in place and sticking,” Bostic said.
Fed Governor Adriana Kugler noted the elevated level of uncertainty in today’s environment and surrounding price pressures, and as such she supports keeping rates on hold for “some time.” Speaking at an event in Washington, she noted that she was “paying close attention to the acceleration of price increases and higher inflation expectations, especially given the recent bout of inflation in the past few years.”
Nevertheless, market players are not yet ready to throw in the towel on the prospect of lower rates by year-end, and futures are showing expectations of two to three interest rate cuts this year. Even so, equity markets continued to decline—the Magnificent Seven stocks are particularly stressed, down 15% as a group this year and falling.
Notably, CoreWeave, a company planning a closely watched initial public offering (IPO), cut the number of shares it plans to sell in the IPO and announced it will sell them for $40 per share, under the $49 to $55 range it originally planned. CoreWeave is an AI cloud-computing startup, backed in part by Nvidia, and its filing had been considered a potential indicator of the strength of the U.S. IPO market.
And showing how momentum has shifted from U.S. to foreign shares this year, emerging markets stocks are outperforming U.S. stocks (up 5% and down 5% year-to-date as of this writing, respectively), similar to the trend during the first five quarters of President Trump’s first term, thanks to double-digit stock market returns in China, Korea and Brazil. One thing I do know: Even when there is a chill in the spring air, and a bad patch in the markets, patience and perseverance wins in the end. My kids will soon be wearing shorts and clamoring for ice cream, and I will be cranking up the air conditioning and pulling weeds in my overgrown yard. There is a time and a season for everything, and we must toil through it.
If you would like to speak personally with a member of your advisory team, please call 833.RWA.PLAN (833.792.7526).