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Major Index Performance (as of Thursday’s close):
- S&P 500: +0.45%
- Dow Jones Industrial Average: +0.74%
- Nasdaq Composite: +0.11%
- Gold: +1.58% (Record High)
New Auto Tariffs:
The 25% tariff on auto imports announced by President Trump on March 26 could put a small dent in this year’s Gross Domestic Product (GDP) growth and potentially push inflation higher. The tariffs are set to take effect April 2.
Looking at U.S. automaker stock prices, General Motors (GM) was hit hardest among the Big Three,falling more than 7% on Thursday. Ford and Stellantis (formerly Chrysler) dropped 3% and 1% respectively. Tesla remained relatively flat for the day but has not been immune from the volatility. This is proof that American manufacturers choosing to build cars in other countries will have to make a decision; they can bring manufacturing back to the U.S. or lose market share. GM has the largest share of its fleet assembled outside the U.S.—roughly 30% of GM vehicles sold domestically in the first three quarters of 2024 were built in Canada and Mexico. The effect of tariffs is largely unknown at this point.
Key Economic Data This Week:
- GDP Annualized (Quarter over Quarter): 2.4% (vs. 2.3% expected)
- Personal Consumption: 4.0% (vs. 4.2% expected)
- GDP Price Index: 2.3% (vs. 2.4% expected)
- Core Price Index (QoQ): 2.6% (vs. 2.7% expected)
- Retail Inventories (Month over Month): +0.3% (vs. 0.7% expected)
Takeaways from the Weekly Reports:
- Headline Personal Consumption Expenditures (PCE) inflation came in at 0.3% for the month, in line with expectations. The year-over-year rate held steady at 2.5%.
- The Federal Reserve’s preferred inflation measure, the core PCE deflator, rose 0.37% (vs. a revised 0.30% prior). On a year-over-year basis, core PCE inflation increased to 2.8% (up from 2.7%). An uptick in healthcare costs, especially at hospitals, contributed to the increase.
- “Supercore” inflation, core services excluding housing, rose 0.4% (vs. 0.2% prior).
- Personal spending climbed 0.4% in February, rebounding from a 0.3% decline in January when cold weather kept consumers at home. Still, this was below the 0.5% consensus forecast.
- On a real (inflation-adjusted) basis, consumer spending increased just 0.1% (vs. -0.6% prior), which suggests a -0.2% decline in Q1 spending (compared to 4.0% in Q4).
- Personal income rose 0.8% in February (vs. 0.7% in January), exceeding expectations of 0.5%. Most of the surprise came from a downward revision to January’s data.
Short-Term Technical Outlook:
Our portfolio management team tracks several technical indicators to monitor market behavior. Since February 20, the S&P 500 has dipped below its 50, 100, and 200-day moving averages, typically viewed as signs of weakening momentum. Once the index falls below a moving average, that level often becomes resistance. This week, the S&P attempted to reclaim it’s 200-day average but failed. This condition, as expected, provides a show of weakness. While we don’t rely on any single signal, this provides evidence of a softening economy.
Macro Viewpoint:
Our economic scoreboard, a measure of many leading indicators, continues to present a persuasive argument that our economy is contracting. Based on the evidence, we believe there is a greater than 50% chance that the U.S. could enter a recession by year-end, if it hasn’t already. While the official unemployment rate remains low, it’s plausible that many eligible workers are on the sidelines. The unemployment is only accurate to a point. For example, it doesn’t capture those receiving severance packages or those who have stopped looking for work. It can take up to a year for the unemployment reports to include this data. In our view, the real percentage of non-working individuals is meaningfully higher than reported.
We’re not trying to paint a picture of doom and gloom, just calling it like we see it. This economy was built on a house of cards dealt by excessive government spending since 2008. That foundation must be fixed, or risk severe deterioration. Staying true to our discipline of diversification, tactical, and active management will be more important than ever during time of economic uncertainty. Don’t forget, investing is a long-term strategy with lots of bumps along the way. Moreover, we remain vigilant and prepared to make adjustments as conditions warrant.
Have a great weekend,
Your Portfolio Management Team
