
THE WEEK IN REVIEW: March 2-8, 2025
Tariff Tantrums
Remember the market’s “taper tantrum” back in 2013? 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. 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.
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. 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. 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. 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. 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.