Market Musings 3/18/2025
Quick thoughts on the markets and major portfolio news. Not on Ursa yet? Download Ursa from the App Store!
Markets bounced off correction territory from last week, but what now?
It’s been 5 days since we’ve had any #Tariffs drama and we’ve seen a bit of a market rebound. However, markets are still well off all-time highs from a month ago as economic concerns remain.
So, is the economy really tilting towards a #Recession? A lot of it will depend on the consumer…
Consumer spending has been incredibly resilient through both a pandemic followed by a significant surge in #Inflation. In fact, over the past 10 years, only the first half of 2020 aka COVID did consumer spending decline quarterly. It also preceded the only three quarters in the past 10 years where annualized GDP declined.
However, with all the #Tariffs drama in the past month, #ConsumerConfidence appears to be showing some cracks. Post-pandemic, the Consumer Sentiment Index has been weaker and largely trending between 65 to 75 points outside of post-COVID reopening euphoria and peak #Inflation in 2022. We exited 2024 at 74 points and January was just bit lower at 71, but then came the #Tariffs.
February took a dive falling -9%. This was followed by last Friday’s preliminary March estimate sliding down another -11%. It’s the lowest reading since 2022 when #Inflation was rampant.
While #Inflation progress is stalling, it’s still below 3% annually now. So, what’s driving the pessimism?
Well, #Tariffs…
Despite current #Inflation meandering around 3%, expectations for future #Inflation is surging. Exiting 2024, #Inflation expectations for the next 12-months were largely tracking with the current #Inflation progress－in the high 2% range.
However, those expectations have spiked since. We exited 2024 around 2.8% with January ticking higher to 3.3%. However, February shocked markets surging to 4.3% and then the preliminary March expectations jumped further to 4.9%.
Markets had largely shrugged off #Tariffs as a negotiation tactic, but consumer obviously are taking them a lot more seriously. To be fair, one-time #Tariffs aren’t going to increase inflation long-term. We’d see a step-up in prices and then the more normal inflation should resume. However, another step-up in prices could break #ConsumerConfidence and by extension their spending.
As we noted earlier, a resilient consumer is a key part of avoiding a #Recession. While we’re not guaranteed a #Recession yet, odds are increasing.
Monitoring #ConsumerConfidence and spending is a key focus for us now. Again, we believe more macro stability will be needed to right-size the ship and regain #ConsumerConfidence.
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The statements, opinions and analyses presented here are provided as general information. This article is the opinion of the author. Anything within this article should NOT be considered an investment recommendation or advice. See Ursa’s full disclosures here.
Original Photo by Pixabay.