March 31, 2025

“Invest for the long haul. Don’t get too greedy and don’t get too scared.”

Shelby M.C. Davis

Well March came in like a lion but is hardly going out like a lamb, but first, here are the numbers. Last week volatility ruled the day as several key reports came out, The S&P 500 lost 2.4%, the Dow Jones Industrial Average fared better, only losing 1.41%, the tech heavy Nasdaq took it on the chin off 4.01%. Internationally, The FTSE 100 was up .14% and the MSCI-EAFE gained a slight .14%. The 2-Year Treasury paid 3.912% and the 10-Year yield was 4.253%.

Last week’s gyrations were due to bad news, then good news, then bad news, finishing up with most investors wondering what is going on. To begin with, the Federal Reserve stood pat on cutting interest rates but sent mixed signals about future rate cuts this year. The PCE number came in a little higher and, as the FED’s top indicator of inflation, it caused a knee jerk reaction. It is important to understand that the dramatic change in Government fiscal policy will take a little time and should pay dividends in the near future. In the meantime, expect some more rollercoaster rides. The good news is according to Morningstar research, who follows 712 big board stocks, we are beginning to see value returning.

Shifting U.S. trade policies, turbulence in global economies and geopolitical realignments have created an environment of uncertainty for investors across equities and credit markets.  Focusing on long-term investment fundamentals, more now than ever, is the key. We believe, with the success of truly cutting Government waste fraud and abuse, using Tariffs to level the playing field, a tactic which is now showing progress, meaningfully reduces government intrusion into the economy, which is why the establishment of both parties, and the media are screaming so loud. The market is still waiting on precise details of the president’s reciprocal tariffs; they’re set to go into effect on April 2. This reset will have its growing pains but fundamentally as the government policy protecting and reestablishing vital industries back in the US along with increases private investment and less regulations the economy and the markets should do very going forward.

Is Inflation the main culprit? Market Watch reports, the increase in the personal-consumption expenditures (PCE) index, the Fed’s preferred measure of inflation, has gotten stuck around 2.5%. And other measures show inflation running closer to 3%. Consumer spending, the main engine of the economy, may also be sputtering. Household outlays only showed a small rebound last month after the first decline in almost two years.

What’s more, combined spending in January and February marked the smallest increase since the worst of the pandemic in 2020. Just several months ago, the economy appeared to be on much firmer ground. Consumer spending was strong, inflation was slowing, and companies were making big plans in response to what they expected would be a business-friendly Trump White House. Has that changed? Or are the policies just starting to take effect. Several things point that way. The proverbial price of eggs wholesale has dropped in half and the price of gasoline is retreating.

The economy as measured by Gross Domestic Product (GDP) grew a revised 2.4% in the final three months of 2024, updated government figures showed, the annualized increase in gross domestic product was raised from a prior 2.3% reading. GDP is the official scorecard of sorts for the economy. Current estimates for the economy, however, show a much slower pace of growth in the first few months of the new year, perhaps 1.5% or less.

What about the job’s situation? The number of jobless workers collecting unemployment benefits declined by 25,000 to 1.86 million, based on seasonally adjusted figures. The reduction in the federal workforce is probably going to show up in jobless claims gradually, given the legal wrangling, and the more complicated process for former government workers to receive benefits. The broader U.S. job market is still in good shape. Hiring has slowed, but unemployment is low at 4.1% and most companies are trying to avoid layoffs. “The labor market continues to roll along,” said Chris Larkin, managing director of trading and investing at E-Trade by Morgan Stanley. “Jobless claims aren’t reflecting any unusual inflation pressures, and they aren’t showing any effects from federal layoffs.”

Going forward, as we close the first quarter of 2025, enormous changes and the breakneck speed the new administration is moving, no one can doubt that President Trump has carefully planned his return to the White House and is definitely on a mission to implement his policies. The hysterics and continued lawfare seem to be the only thing left to the opposition. That said, the fundamentals which underpin this economy are still in good shape, and the areas of concern i.e. the ridiculous government deficits are substantially being addressed. Time will tell if it is the right medicine for this patient.

Finally, I am violating my cardinal rule of not to time the market or pick individual winners or losers. Why? Because in my 45 years of managing money, I have never seen a more classic example of buy low sell high that the opportunity before us with Tesla, so much so that it may be an interesting bet to throw a little money at it and forget about it for a few years. I cannot bring myself to bet against Elon Musk. If you agree or a so intrigued, give me a call to talk about if it makes sense in your personal portfolio.

More to come in our quarterly report next week.

Mike