Weekly Recap:

by Michael P. Reinking, CFA & Eric Criscuolo

Last week markets finally stabilized, breaking a four-week losing streak with markets ending on a positive note as President Trump broke the tariff silence suggesting there could some “flexibility”. That was followed by a couple of positive press reports over the weekend suggesting that tariffs would be more “targeted” than previously thought focused on the 15% of nations with persistent trade imbalances with the US. Coming on the heels of options expiration that news and a bounce back in services PMIs caused a sharp snap back rally in equity markets with most major US indices closing up 2%. It was a risk on day with the high multiple growth stocks that have gotten dismantled over the last month rebounding sharply. 

However, the tariff tranquility didn’t last long during the day President Trump said that auto tariffs would be coming soon, refuting some of the press reports. He also announced that any country buying Venezuelan oil products would be hit with 25% tariffs. This didn’t derail the optimism, and the S&P 500 traded above its 200d moving average for the first time since the beginning of the month. Markets shrugged off another sharp decline in consumer sentiment on Tuesday in the quietest session in some time with the S&P 500 breaking a 22-day streak where the intraday exceeded 1%. However, that too did not last long and a new streak has begun. 

Wednesday was a key turning point again. The weakness began in the AI complex after TD Cowen put out another research report suggesting that Microsoft was pulling back on data center deals. That ultimately bled into the other momentum stocks that rallied to start the week. The White House then announced that President Trump would hold a press conference on auto tariffs after the close which put some additional pressure on the tape taking the S&P 500 back below its 200d ma. 

The auto tariff announcement places 25% tariffs on imported autos and some auto parts starting April 2. This mainly effects Mexico, Japan, Canada, South Korea and Germany and according to S&P Global would impact nearly 50% of autos sold in the US last year.  While the auto tariffs had been telegraphed and expected, it still underscores how these policies are not just talk, and more are coming. The tariff news sent automakers and auto component suppliers around the globe sharply lower. However, parts retailers, car rental services and used car dealers are seeing strength on the potential increase in demand for used cars and car maintenance. Keep in mind autos have a ~7% weighting in CPI. 

All things considered the losses on Thursday were reasonably contained but today heading into the weekend the downside momentum resumed with most major indices closing down >2% wiping out the modest gains for the week. The S&P 400, 500 and 600 all ended the week down ~1.5%. The mega-cap tech stocks continued to be under significant pressure with the NYSE FANG+ index falling just over 4%.  The growth factor continued to underperform while consumer staples, energy and yield oriented sectors outperformed. 

Up until this point much of the perceived weakness has been coming from the survey data but this hasn’t necessarily been feeding into the data. We have been looking at web traffic data from NYSE listed similarweb as you can see below there has been a significant deterioration travel related web traffic over the last two months. The retail picture has been a little more mixed with Big Box traffic holding steady y/y but discretionary spending categories have been falling over the last couple of months. 

This uncertainty is now starting to hit corporate earnings. Over the last few weeks companies have highlighted the environment is starting to impact business and have been cutting guidance. There have been guidance reductions from companies in the airline, housing and retail sectors. This week Jefferies also noted that its investment banking backlog has been building but noted that capital markets have become more challenging while Goldman cut is 2025 M&A target to 7% from 25%. The official start to earnings season is about two weeks away and will likely be a challenging one. Sine the start of the year S&P 500 Q1 earnings estimates have been cut in half to +7% y/y but the 2025 estimates are still holding up pretty well down to 11.3% from 12.7%. 

Global Markets - We’re not exactly breaking the Watergate scandal here when we say that the auto tariff news was the major event impacting global markets this week. Canada, Mexico, Germany, Japan and South Korea have the largest exposures. The announcement brought sharp rebuttals across the world but the much-anticipated reciprocal tariff announcement on April 2 could trigger more specific responses. Meanwhile major European data releases leaned positive especially for manufacturing. 

Curencies - The US Dollar Index was flat for the week. The Dollar moved off its recent low versus the Yen (~¥146) to challenge ¥151, though it lost ground on Friday to fall below ¥150. The Mexican Peso fell 1% but considering the tariff news the move seems muted, possibly indicating expectations of an agreement soon. 

This week was full of survey data which continued to highlight increasing consumer and business uncertainty. The hard data continues to look a bit better than the prevailing narrative, but cracks are showing up. S&P Global flash PMIs were released on Monday. Manufacturing fell back into contraction reversing much of the last two months move higher as some of the tariff front running fades. Last month, the services PMI fell sharply and was one of the early sparks of the growth scare. It rebounded this month from 51 to 54.3. However, S&P Global Chief Economist, Chris Williamson, noted,” some of the March upturn in services was reportedly due to business picking up after adverse weather conditions had dampened activity across many states in January and February, which could prove a temporary bounce.” Future output expectations for manufacturing held steady near recent highs but continued to deteriorate for services. The prices components continued to move higher most notably for manufacturing input prices (see Chart).

The Conference Board’s Consumer Confidence index came in at 92.9 down from last month’s 100.1. Expectations fell to the lowest level in 12 years down to 65.2 from 74.8 last month. Today’s U of Mich. Sentiment Survey was also revised lower while the inflation expectations were revised higher with 1yr moving up to 5% from 4.9% while the 5yr inflation expectations ticked up 0.2% to 4.1%. Keep in mind this is still much higher than markets-based inflation expectations. 

Moving to the hard data.  Headline durable goods and ex-transports came in well ahead of estimates while last month’s numbers were revised higher. However, capital goods orders, which is viewed as a proxy for business spending fell 0.3% from an upwardly revised 0.9%. However, keep in mind the January increase was the largest in over a year and spending levels remain very healthy. 

The claims data held steady with initial claims at 224k while continuing claims ticked down to 1.85ml from 1.89ml.

This morning’s personal income increased 0.8% double the expectations. Personal spending was solid up 0.4% though a touch below the 0.5% expectations. The goods spending was pretty solid ahead of potential tariffs, but the services numbers were mixed with particular weakness in in food services and accommodations. Headline PCE was inline with expectations up 0.3% m/m and 2.5% y/y. Core-PCE was a tenth hot up 0.4% and 2.8% respectively but this was really just a rounding error. The disinflationary process has stalled out and the 3/6-month annualized readings are moving higher which coupled with the other economic data is increasing the stagflation concerns. 

Despite the hotter inflation data yields moved sharply lower today down ~10bps across the curve, in what seemed to be a risk off flight to safety move heading into the weekend and ahead of next week’s tariffs. For the week there was a steepening of the curve with the 2yr down 4bps to 3.92% approaching the recent lows. The 10yr moved higher early in the week but gave up all of that move down 10bps today. 

Coming into today US high yield spreads were wider by 10bps for the week.

It feels like we say this a lot but next week is going to be a very important week with the reciprocal tariff framework set to be unveiled on April 2nd. Monday in the end of Q1.  The key global economic data includes EU CPI and China PMIs. In the US the most impactful economic data is ISM surveys and employment data will be released. There are a couple of retail and industrial earnings sprinkled in. Fed speakers will be out in force including Fed Chair Powell on Friday. Enjoy the weekend and prepare to be liberated.  

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