Stocks sold off this week, reasserting their trend throughout most of the year thus far, as investors continue to be wary of the uncertainty created by President Trump’s bold economic initiatives. As noted after the gains recorded during the week prior to this, “we tend to think this churning still has quite a way to go as the markets try to find their footing amidst a dramatic change in domestic economic policy as well as a realignment of our relationships with our traditional trading partners.” With this in mind, we continue to be selective, remaining patient to see what unfolds.
- Within the first paragraph of our Q1-2025 Newsletter written on January 11, we wrote that “a Trump Administration brings with it a much wider range of potential economic outcomes than that of a traditional executive branch. Even though his agenda may ultimately prove successful, the unorthodox nature of his approach may be accompanied by uncertainty as he bucks the system.” Nothing has changed to dissuade us from this stance.
- Presently, there is a conflict between hard economic data, data rooted in quantifiable numbers and soft economic data, one comprised of sentiment and surveys. As is indicated below, the hard economic data (Personal Income and Spending, Fourth Quarter GDP and Sales of New Homes) points to a modestly growing economy, supported by a resilient consumer. However, the soft economic data (Consumer Sentiment, Consumer Confidence) tells a different story as it portends troubles ahead as the consumer is worried. Investors tend to rely on information that supports their opinions while ignoring ones that don’t. We make every effort to weigh each piece of data independently and then see if it is strengthening or weakening over an extended period. We will then weigh the potential impact of the hard data as compared to the soft and draw a conclusion. Presently, we give more weight to the soft as compared to the hard.
- Well anchored inflation expectations. At the press conference following the regularly scheduled meeting of the Open Market Committee (FOMC) of the Federal Reserve, Chair Jerome Powell stated that “it can be the case that it’s appropriate sometimes to look through inflation, if it’s going to go away quickly, without action by us, if it’s transitory. That can be the case of tariff inflation. I think that would depend on the tariff inflation moving through fairly quickly and, critically, as well on inflation expectations being well anchored.” Unfortunately, contained within the release of this month’s reading on Consumer Sentiment from the University of Michigan (see description of soft data immediately above), Survey director Joanne Hsu noted that “year-ahead inflation expectations jump up from 4.3% last month to 5.0% this month, the highest reading since November 2022 and marking three consecutive months of unusually large increases of 0.5 percentage points or more. This month’s rise was seen across all three political affiliations. Long-run inflation expectations surged from 3.5% in February to 4.1% in March, reflecting from a large surge among independents plus a sizable rise among Republicans.”
It’s The Economy…”
- The Bureau of Economic Analysis reported that Personal Income rose 0.8% during February (4.6% y/y), after rising 0.7% in January.The Wage & Salary Component rose 0.4% in February (3.5% y/y), after rising 0.2% in January. Personal Spending (PCE), representingapproximately 70% of economic activity rose 0.4% during February (5.3% y/y) after rising 0.3% during January. The consensus was for the PCE to rise 0.6%. Personal Savings rose to an annual rate of 4.6% during February from 4.3% during January. The PCE Chain Price Index rose 0.3% in February (2.5% y/y) following a rise of 0.3% during January. Excluding food and energy, the Core PCErose 0.4% during February (2.8% y/y), after rising 0.3% during January. (Source, Bureau of Economic Analysis)
- The University of Michigan reported that the Final March Reading of Consumer Sentimentfell to 57.0 (-28.2% y/y) from a preliminary March reading of 57.9 and from a final February 64.7. The final March expectations componentfell to 52.6 (-32.0% y/y) from a mid-March 54.2 as well as from a final February 64.0. Lastly, the final March current conditions componentrose to 63.8 (-22.7%) from a preliminary March 63.5 and from a final February 65.7. According to the Survey of Consumers Director, Joanne Hsu, “consumer sentiment confirmed its early month reading and fell for the third straight month, plummeting 12% from February. The expectations index plunged a precipitous 18% and has now lost more than 30% since November 2024.” (Source, University of Michigan)
- Fourth Quarter Gross Domestic Product (third and final estimate), as reported by the Commerce Department, a tally of the output of all goods and services in the United States, rose at a revised annualized rate of 2.4%, up from a previous estimate of 2.3%, but down from 3.1% during Q3 and as compared to 2.5% y/y. Final Sales to Domestic Purchasers rose at an annual rate of 2.9% during Q4, after rising 3.7% in Q3 and by3.0% y/y. Government Spending (Government Consumption Expenditures and Gross Investment) rose at an annualized rate of 3.1%, revised up from a previous estimate of 2.9%, down from 5.1% during Q3 and as compared to 3.2% y/y. (Source, U.S. Bureau of Economic Analysis)
- The Census Bureau reported that Sales of New Homesrose 12,000 during February to a Seasonally Adjusted Annualized Rate (SAAR) of 676,000 from 664,000 during January (5.1% y/y). Sales of New Homes have fallen by 34.43% from their peak of 1.031 million in October 2020 and 47.15% from the peak in July 2005 of 1,279,000 units. The average sales price of a new homefell 4.1% (-4.4% y/y) to $487,100 in February following a 5.5% January increase. The average price was 10.0% below the high of $541,200 in July 2022. These sales prices are not seasonally adjusted.The number of unsold new homes on the marketrose 0.2% (7.5% y/y) to 500,000 in February, after a 1.6% January increase. The median number of months a new home stayed on the marketrose to 2.9 months in February, the highest since April 2022, after rising to 2.8 months in January. The latest reading was well above the record low of 1.5 months of 1.5 months in both September and October of 2022, but was well below a high of 5.1 months in March 2021. (Source, U.S. Census Bureau)
- TheConference Board’s Consumer Confidence Index fell to 92.9 (-9.9% y/y) during March from 100.1 in February. The present situation index fell to 134.5 in March from 138.1 (-8.4% y/y) while the expectations componentplunged by 12.8% to 65.2 during March from 74.8 during February (-11.9% y/y) and in so doing marked the lowest level for the latter since March 2013. Those surveyed saying that jobs are “hard to get”fell to 15.7% of respondents during March as compared to 16.0% in February while those claiming that jobs were “plentiful”was unchanged at 33.6% over those same months.
Upcoming Economic Reports scheduled to be released this week include the following; on Tuesday, February Construction Spending and the February Job Openings and Labor Turnover Survey (JOLTS); on Wednesday, February Factory Orders; on Thursday, the Weekly Report of Initial Claims for Unemployment Benefits along with the February Trade Balance; and, on Friday, the March Non-Farm Payroll Report and the March Unemployment Rate.
Q4-2024 Earnings Season Has Slowed to a Trickle. Nonetheless, several companies of note are scheduled to report, to include –PVH Corp (PVH), Unifirst (UNF), RH (RH), Constellation Brands (STZ), Conagra Brands (CAG) and Greenbrier (GBX).
General Disclosure:“This presentation is not an offer or solicitation to buy or sell securities. The information contained in this presentation has been compiled from third party sources and is believed to be reliable, but its accuracy is not guaranteed and should not be relied upon in any way, whatsoever. Fagan portfolio characteristics and holdings are subject to change at any time and are based on a representative portfolio. Holdings and portfolio characteristics of individual client portfolios may differ, sometimes significantly, from those shown. This information does not constitute, and should not be construed as, investment advice or recommendations with respect to the securities listed.
Additional information including management fees and expenses is provided on our Form ADV Part 2. The actual return and value of an account fluctuate and, at any time, the account may be worth more or less than the amount invested. Bond Investments are affected by interest rate changes and the credit-worthiness of the issues held in the portfolio. A rise in interest rates will cause a decrease in the value of fixed income positions. Past performance results are not indicative of future results.”
