Weekly Economic Update: March 11, 2025
Presented by Nicholas Wealth Management
Tariff tantrums
Remember the market’s “taper tantrum” back in 2013?1 There’s a lesson here from our not-too-distant history. After investors learned the Federal Reserve was slowly putting the brakes on its quantitative easing (QE) program, the markets freaked out. The primary concern was that the market would collapse if the Fed stopped QE. But when it was over, it turned out the panic was overblown, and the markets continued on.
The S&P 500 was around 1,700 in the late summer of 2013 at the height of the taper tantrum.2 A lot has happened since, and a lot more will likely happen in the future. But even after this most recent sell-off (which isn’t over yet as a result of President Donald Trump’s tariffs going into effect for Canada, Mexico and China, plus threats of expanding them to Europe and beyond), the S&P 500 still stood at 5,750!
Think about that for a few minutes. Despite what the army of economic pundits will have you believe, the S&P 500 has managed to climb 4,000 points since 2013, defying predictions of its collapse.
What do we currently know? We know the market doesn’t like change, and it was flying a little too high for its own good. We also know the past two years were spectacular, and volatility was mostly non-existent.
So, what has changed? President Trump decided to use tariffs to pressure other nations to do what we feel they should be doing — whether it’s slowing and eliminating drug and human trafficking, staunching the flow of migrants or encouraging other countries to treat us fairly when trading with us.3
All the uncertainty that has accompanied these announcements has seemingly been severe and overblown. The media doesn’t help; they provide constant conjecture and opinions that are almost always negative. Most of the media coverage on tariffs presents them as bad, without acknowledging any potential positives. Maybe it’s because most major media outlets are owned by corporations and billionaires who benefit the most from globalization? Free trade keeps labor costs low, increases corporate profits and concentrates wealth at the top — so it’s no surprise the media portrays tariffs as bad.
The truth is we don’t know the full impact of what is happening right now until we see more anecdotal evidence. Markets are too impatient, and with us flying at these levels, it may be far easier to park your gains and wait it out. Your plan should be robust enough to withstand these types of market gyrations. If it’s not, we highly recommend sitting down with your advisor to reassess. We believe markets will bounce back once the tariff hubbub dies down, and we will likely see higher markets by year-end.
More Fed cuts than previously thought?
Job strength is beginning to weaken, at least according to the ADP employment report.4 We were expected to add 162,000 new jobs in February; in reality, we added a meager 77,000. Sure, there was a lot going on between the weather and government layoffs. But missing the consensus by half was significant.
Then there was the Bureau of Labor Statistics’ (BLS) non-farms payroll number, which missed the consensus +160,000 by a mild 9,000 to come in at +151,000.5 The telling thing was that a lot of the job decreases were in government, health care (which often is dependent on government spending) and hospitality.6 In addition, wage growth dipped, last month’s new jobs number was revised downward and the unemployment rate rose from 4.0% to 4.1%.
All these areas have kept the jobs market looking strong until now. Was it all a mirage? It kind of feels like it. When you couple jobs data with stubborn inflation and weak consumer sentiment, it’s no wonder people are struggling.
There was a recent report that 50% of the spending is done by the wealthiest top 10% of Americans, so at least that helped bolster consumer spending data for a while.7 Guess what else the top 10% have? That’s right: money in the stock market. When the markets are having a hard time, like right now, those same folks do not feel as rich and will probably cut back on spending. Everyone else is pretty much tapped out, so if the top 10% rolls over, so does the economy.
Given all this, it was no surprise that expectations jumped for more rate cuts this year.8 We went from one or two to now three or even four by the end of the year. But don’t get too attached to the idea; once the tariff situation we discussed above gets resolved and markets respond positively, the Fed will again focus on inflation and give rate cuts the stiff arm.
Coming this week
- Last week’s focus was jobs. There’s one last employment data point here: the Job Openings and Labor Turnover Summary (JOLTS). This one has a monthly lag, so the data we’ll see on Tuesday is for January. There were 7.6 million job openings in December, and the number has been declining over the past few months.9
- Inflation will be back in the hot seat this week. On Wednesday, we’ll see the latest consumer price index (CPI) and Core CPI, which were both running at 3.0% year over year.10 Not to sound like a broken record, but we need to see improvement here to justify any talk of additional rate cuts this year.
- Also on Wednesday, we’ll see MBA mortgage applications, which were great last month.
- On Thursday, we’ll turn to producer price index (PPI) and Core PPI numbers, which were 3.5% and 3.4% last month.11 Same story here as with CPI; it will be hard to improve CPI if producer costs are rising and even harder to justify rate cuts. Weekly jobless claims will also come out on Thursday and will be closely followed after last week’s jobs reports.
- Friday will be fairly quiet with the exception of the preliminary consumer sentiment for March. The consumer has been faltering, and a weaker reading here will only raise calls for rate cuts and could spook markets further.
- Fourth-quarter 2024 earnings are almost completely done, with 97% of S&P 500 companies reporting results.12 About 75% of companies reported positive earnings per share (EPS) and 63% reported positive revenue. Earnings growth for the S&P 500 in the fourth quarter is 18.2%, marking the highest year-over-year earnings growth rate reported by the index since the fourth quarter of 2021.
- For the current quarter, 58 S&P 500 companies have issued negative EPS guidance, and 40 companies have issued positive guidance. Valuation is still rich for the S&P 500, with the forward 12-month price-to-earnings (P/E) ratio at 21.2 versus the 5-year average (19.8) and the 10-year average (18.3). It was a pretty good earnings season overall, but it’s been lost thanks to the tariff dustup.
Sources:
1 Jamie McGeever. Reuters. May 22, 2023. “‘Taper tantrum’ ripples, 10 years on.” https://www.reuters.com/business/finance/taper-tantrum-ripples-10-years-mcgeever-2023-05-22/. Accessed March 8, 2025.
2 Yahoo! Finance. “S&P 500 (ˆGSPC).” https://finance.yahoo.com/quote/%5EGSPC/. Accessed March 8, 2025.
3 Kinsey Crowley. USA Today. March 7, 2025. “Trump scales back tariff orders: Here is the latest tariff news, explained.” https://www.usatoday.com/story/news/politics/2025/03/07/donald-trump-tariff-news-updates/81943882007/. Accessed March 8, 2025.
4 ADP Research. Feb. 2025. “ADP® National Employment Report.” https://adpemploymentreport.com/. Accessed March 8, 2025.
5 U.S. Bureau of Labor Statistics. March 7, 2025. “Employment Situation Summary.” https://www.bls.gov/news.release/empsit.nr0.htm. Accessed March 8, 2025.
6 Alexandra Canal. Yahoo! Finance. March 7, 2025. “Federal government employment falls by 10,000 in February as DOGE cuts slowly make impact on US labor market.” https://finance.yahoo.com/news/federal-government-employment-falls-by-10000-in-february-as-doge-cuts-slowly-make-impact-on-us-labor-market-155113287.html. Accessed March 8, 2025.
7 Eric Revell. Fox Business. Feb. 25, 2025. “America’s wealthiest households driving nearly half of consumer spending: Moody’s.” https://www.foxbusiness.com/economy/americas-wealthiest-households-driving-nearly-half-consumer-spending-moodys. Accessed March 8, 2025.
8 CME Group. “FedWatch.” https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html. Accessed March 8, 2025.
9 U.S. Bureau of Labor Statistics. Feb. 4, 2025. “Job Openings and Labor Turnover Summary.” https://www.bls.gov/news.release/jolts.nr0.htm. Accessed March 8, 2025.
10 U.S. Bureau of Labor Statistics. Feb. 12, 2025. “Consumer Price Index – January 2025.” https://www.bls.gov/news.release/pdf/cpi.pdf. Accessed March 8, 2025.
11 U.S. Bureau of Labor Statistics. Feb. 12, 2025. “Producer Price Index News Release Summary.” https://www.bls.gov/news.release/ppi.nr0.htm. Accessed March 8, 2025.
12 John Butters. FactSet. Feb. 28, 2025. “Earnings Insight.” https://advantage.factset.com/hubfs/Website/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_022825.pdf. Accessed March 8, 2025.
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