Last Week
Fog appears to be the new buzzword on Wall Street. One definition of Fog is “something that confuses or obscures.” A dense Tariff Fog has descended on the U.S. economy, resulting in dangerous driving for investors and business operators. The hazard lights are flashing as S&P first-quarter earnings growth estimates have been cut to 7.3% from 11.7%, while consumer confidence has plunged to a 4-year low. On the earnings front, companies are struggling to plan due to uncertainties and the possible upheaval of supply chain costs while also factoring in the impact of sinking consumer sentiment on the demand side.
Another tariff slump trounced the previous week’s bounce as the forecast darkened for President Donald Trump’s “Liberation Day” on April 2, when his reciprocal tariffs will go into effect, along with the 25% tariff on auto imports announced last Thursday. Stock prices were actually slightly in the green before that announcement. Still, those additional tariffs plus a somewhat hotter-than-anticipated reading on the Fed’s preferred inflation gauge on Friday morning, the core personal consumption expenditures price index triggered a dense end-of-the-week sell-off. The sticky inflation reading and concerns over the impact of tariffs on the overall price level have put the Fed in an uncomfortable box, which Chair Jerome Powell discussed mid-week. The silver lining of Powell’s address was the Fed’s assessment that the economy remains in good shape, which briefly comforted investors. Nevertheless, by the closing bell, the S&P 500 and Russell 2000 were approximately 1.5% in the red, while the tech-heavy Nasdaq Composite fared the worst, sliding 2.6%. The dollar and the 10-year Treasury rate remained unchanged, while gold soared to another record high. We recommend gold and gold mining shares as reasonable hedges as the fog thickens. While encouraging short-term caution rather than “buying the dip,” we are sticking to our basic principle that the stock market offers attractive long-term returns. This fog will ultimately lift, perhaps as soon as next week.
The skies on the Chicago Sports Scene are brightening. The Bulls are playing with increased energy and have been one of the best teams in the NBA over the last few weeks. The Bears have made some promising roster enhancements, including the desperately needed rebuilt offensive line. Baseball season is underway, and the White Sox won their first game! The Cubs are off to a bumpy start, but it’s a very long season. Mercifully, the Blackhawks season will be over soon.
This Week
“Liberation Day” is Wednesday. Perhaps the powers that be will realize that a clearly stated rational trade policy is in everyone’s best interest. On the other hand, the administration could double down on disruptive bellicose rhetoric. We expect that trading will be volatile.
On Friday, the Department of Labor will release the March jobs report. The consensus calls for a modest increase of 138,000 in non-farm payrolls, with the unemployment rate remaining unchanged at 4.1%. An inline or stronger reading would likely keep the Fed on hold, while a soft reading could push the Fed towards loosening monetary policy.
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