March 28, 2025

Worldwide Headlines

1. Tariff talks remain in control of markets. On Wednesday afternoon after the market close, the President announced a more refined plan around auto tariffs (see below). This caused selling in stocks that lasted the rest of the week.
   
   From Bloomberg: The 25% tariff on auto imports President Donald Trump announced March 26 could nudge down this year’s GDP growth and edge inflation higher. The tariffs are set to take effect April 2. Cars made up 6.6% of all US imports last year at $217 billion, with Mexico, Japan, and Korea among the top sources. A 25 percentage-point increase in tariffs on that number of imports would lift the US average effective tariff rate by 1.7 ppts.
2. U.S. economic reports continue to be robust. There were several hard data reports this week that show the U.S. economy continues to move forward, even in the face of the tariff talk. This week durable goods orders, housing, employment and personal saving numbers for the U.S. economy were better than expected. There is currently sharp division among national economists with respect to the economy, but based on what we know today, our economic team does not see a recession this year.
3. Treasury yields move lower. As of this writing, a 10-year Treasury yield is 4.27%, which is down from 4.57% at the end of last year, but not quite as low as we saw last Fall. The current survey of national economists sees the 10-year Treasury yield at 4.29% by year end. Hence, we are now seeing increased more mortgage application activity due to a corresponding decline in mortgage rates. This is arguably good news for the economy under stress from tariff talks.

Economic Reports

1. S&P Global U.S. Purchasing Manager Indexes for March came in much better than expected on a composite (manufacturing and services) basis. The actual reading was 53.5, when only 50.9 was expected. It was the Services portion of the composite that paved the way for the higher reading. Manufacturing is back below the key 50 level.
2. S&P CaseShiller 20-City Home Price Index from January rose only 4.67% from the prior year, slightly behind expectation. The three price leading cities year-over-year were New York, Chicago, Boston. The three worst were Denver, Tampa, Dallas.
3. New Home Sales during February were a slightly lower than expected 676,000 annualized pace. The median sale price was $414,500 which is $6,400 lower than a year ago.
4. Consumer Confidence Index for March had a reading of 92.9, which was lower than expected and lower than the prior month. The reading is now the lowest in four years due to concerns about higher prices and economic unknowns of the Trump Administration.
5. Durable Goods Orders for February were +0.9% from the previous month when -1.0% was expected. However, the value of Core Capital Goods Orders, a proxy for business investment, decreased -0.3% last month, the first drop since last October. What really rose in the report was orders around Vehicles, Vehicle Parts and Electrical Equipment.
6. Weekly initial jobless Claims were only 224,000 (down 1,000 from the prior week), while Continuing Claims fell to 1.856 million (lower than the weekly average of 1.862 million so far this year). Labor market is still tight and the Federal government layoffs are still not affecting the numbers.
7. Q4 GDP Revision was nudged higher a tick to +2.4% QoQ annualized. While Personal Consumption was revised lower, the negative effects of Gross Private Investment and Exports were lessened, while Government Consumption was taken higher.
8. Pending Home Sales Index from February rose slightly to a reading of 72.0. This was slightly better than expected as buyers returned after the inclement weather in January.
9. Personal Incomes from February twice as high as the expectation at +0.8% from the prior month, which Personal Spending was a tick lower than expected at +0.4%. Inside the report, the Personal Consumption Expenditures Index (preferred inflation measure by the Fed) was higher by an as expected +0.3% from the prior month and +2.5% from the prior year. The computed Savings Rate rose to 4.6% - the highest level since last June.

Markets this Week (mid-day Friday)

1. U.S. Dollar Index – lower…DXY at 104.056 or -0.13% lower so far this week (1 yr. range = 100.381 to 109.956).
2. Bond yields – mixed…2-year Treasury yield declines to 3.93%; 10-year up to 4.27%.
3. Stocks – lower…as of mid-day all five major global stock indexes we track are lower in the 1% range
4. Commodities – mixed…4 of 6 sectors in BCOM Index are lower so far this week; only Precious Metals and Energy are higher

Next Week

1. Economic Reports
   • Construction Spending, JOLTS Job Opening Survey, ISM Manufacturing Index, Monthly Vehicle Sales, Factory Orders, Trade Balance, ISM Services Index, Monthly Employment Report
     • U.S. consensus QoQ real GDP est.: Q4 = +2.4%, Q1 = +2.1%, Q2 = +1.9%, Q3 = +1.9%, Q4 = +2.0%
     • U.S. consensus YoY inflation est.: Q4 = +2.7%, Q1 = +2.8%, Q2 = +2.7%, Q3 = +3.0%, Q4 = +2.8%
2. Earnings Reports
   • Q1-2025 S&P 500 EPS estimate at the beginning of the period = +6.7%
   • Q1-2025 S&P 500 summary to date: N/A reported; N/A beat estimate; YoY EPS = N/A%
   • S&P 500 YoY EPS estimates: Q4-2024 = +14.3%, Q1-2025 = +6.7%, Q2-2025 = +7.4%, Q3-2025 = +11.8%, Q4-2025 = +11.5%
3. Events
   • Central bank meeting in Australia, Poland
   • 25% tariffs on car imports are set to take effect along with announcement of other ‘reciprocal’ tariffs