The latest on tariffs, inflation, market trends, the price of eggs and more.
About the only thing rising in price this week is the Boston Celtics, with four confirmed bidders and $6 billion at stake. At least it’s “Gino Time” for someone. Sadly, the financial markets remain in turmoil, with the S&P 500 dipping into correction territory on Thursday—it’s down 10% from its record high in February. The technology-stock-heavy Nasdaq Composite is now down 14.2% from its record high in December.
The markets remain roiled by President Trump’s twists and turns on tariffs, not to mention fallout from DOGE-related government layoffs and now an impending government shutdown if Congress can’t pass a spending bill before midnight to extend funding through September. The latest indications are that at least some democrats will vote to pass the funding measure, with the positioning that, if they do not comply, Trump and Musk will make even deeper cuts to federal agencies.
In the international trade arena, this week brought a threat from Trump to impose a 200% tariff on alcoholic beverages from the European Union after the bloc on Wednesday imposed a 50% tariff on U.S. spirits like bourbon. The EU’s tariff on U.S. spirits was in retaliation for Trump’s sweeping 25% tariffs on steel and aluminum that went into effect this week.
“No, I’m not going to bend at all—aluminum or steel or cars. We’re not going to bend. We’ve been ripped off as a country for many, many years,” Trump told reporters in the Oval Office.
As for DOGE news, the outgoing U.S. Postmaster signed an agreement enlisting the agency to help the U.S. Postal Service cut costs and address a $9.5 billion loss last year. Meanwhile, a federal judge has ordered DOGE to turn over a wide array of records and answer questions about plans it crafted to downsize federal agencies, fire employees and suspend federal contracts. And in two separate rulings, U.S. district judges ordered government agencies to rehire thousands of probationary employees whose jobs were cut last month. The administration is challenging the rulings.
The result of all this chaos in Washington has been a continued downslide for the markets. Trump and others in the administration are now fully acknowledging that the U.S. will be “in a period of transition,” but did not directly answer questions probing the possibility of recession. For his part, U.S. Treasury Secretary Scott Bessent said the Trump administration is focused on the “real economy” and the outlook for the long term.
With that, recession is now the talk of the town, with major Wall Street firms calling the odds between 20% to 30%. Former Treasury Secretary Larry Summers stated it’s a real possibility and former New York Fed President Bill Dudley acknowledged the risk has definitely gone up.
We still think the risk of recession is very low but acknowledge the fallout from Trump’s policies on tariffs and reductions to federal payrolls could bring what was expected to be a solid year of growth down to a goose egg. Without any offsetting stimulative measures like interest-rate cuts from the Federal Reserve or a fiscal package that includes tax cuts and sweeping deregulation, markets will be forced to reckon with the full brunt of the Trump agenda and the reality of the negative wealth effects it will create. A reset may be needed in key areas, but the speed and extent of these changes are hard for the market and the economy to digest, especially against a backdrop of what were once very full valuations on much of the stock market.
That said, don’t forget the U.S. economy has proven to be very resilient in recent years. It has withstood Covid-19 variants, supply-chain chaos, a four-decade high for inflation and the Fed’s war on inflation without faltering.
To that point, two very benign inflation reports for the month of February—the consumer price index and producer price index—showed improvements, as did the news that the average price of a dozen eggs has dropped from $7.22 to $4.90 over the course of one week.
With the volatility in the market, a flight to quality has pushed interest rates down and mortgage rates moved lower as a result. The average 30-year fixed rate went from a recent peak of 7.0% in January to 6.6% now. This has reportedly caused a surge in mortgage applications, reflecting a strong start to the spring homebuying season.
A 10% correction isn’t uncommon for the stock market, but it’s been a while since the last one in late 2023. And many large stocks have fallen into bear market territory (off more than 20% from recent highs).
We urge you to stay committed to your investment plan and not blink in this moment, as the fundamentals of earnings growth have not materially shifted nor has our belief that market advances will resume, albeit at a slower pace, and despite the uncertainty of politics. It is also gratifying to see diversification working, with European equities trouncing U.S. stocks so far this year and still looking inexpensive relative to some U.S. market segments even after this reset. Last, but not least, bonds remain a good choice for yield and stability. As interest rates and money market yields are likely to continue to decline, we think it is worth considering laddering out some bonds and protecting yourself against reinvestment risk.
If you would like to speak personally with a member of your advisory team, please call 833.RWA.PLAN (833.792.7526).