March 10, 2025

“With a good perspective on history, we can have a better understanding of the past and present, and thus a clear vision of the future.”

 Carlos Slim Helu

After last week, a little historical perspective is in order. Here are the numbers: The S&P500 suffered a loss of 3.32%, the Dow jones Industrial Average fell 2.5%, The Nasdaq followed down 3.32%, Internationally, faired much better with the FTSE 100 down 1.47% and the only winner was the MSCI-EAFE actually up 2.26%. The yield on the 2-Year treasury was back up to 4.0% and the 10-year paid 4.305%.

So, it was inevitable that this bull run took a breather, the question is are we ok going forward? Let’s start with Europe as they were the winner last week. The European Central Bank has delivered another interest rate cut in 2025, lowering all three key rates by 25 basis points. The decision reflects confidence in the disinflation process, with headline inflation projected to ease to 2.3 percent in 2025 before aligning with the 2 percent target in 2026 and 2027. However, rising energy prices and lingering wage adjustments remain inflationary risks. The euro area’s annual inflation rate edged down to 2.4 percent in February, marking a marginal cooling from January’s 2.5 percent. While the decline suggests progress towards price stability, inflationary pressures remain uneven across sectors, highlighting the complexity of the disinflation process.

Back across the pond our way, Market Watch Robb Greg reports: “Federal Reserve Chair Jerome Powell on Friday sent a clear signal that the central bank intends to hold interest rates steady and wants to see greater certainty about where the economy is headed before making a move. “We do not need to be in a hurry and are well positioned to wait for greater clarity,” Powell said in a speech to the 2025 U.S. Monetary Policy Forum at the University of Chicago Booth School of Business.

The Fed cut its benchmark interest rate by 100 basis points, to a range of 4.25%-4.5%, in the last four months of 2024. It held policy steady at its January meeting, and Powell and several of his closest colleagues have now signaled they are planning, at the moment at least, to remain on the sidelines at their next meeting, set for March 18-19. Powell noted that there are hints that consumer spending might be moderating in the first quarter after a strong performance late last year.”

This of course with all the peek-a -boo trade tariff negotiations caused not surprisingly caused market jitters last week. The realization that President Donald Trump’s promised tariffs were no mere negotiation tactic sent the markets into a tailspin last week, with some good relief buying last Friday. As Investors Business Daily reported, a wave of uncertainty socked the U.S. stock market in February, short-circuiting an early-year rally and saddling most mutual fund and ETF investors with monthly losses.A slew of emerging headwinds — ranging from fears of consumers pulling back on spending to growing unease about President Donald Trump’s tariff plans — dragged the average U.S. diversified equity fund down 2.78% in February. For the year, the average fund is up 0.55%.

The biggest losers in February were domestic growth funds, with portfolios that invest in smaller stocks taking the brunt of the sell-off, according to Lipper Refinitiv data. Small-cap growth funds cratered 6.72%. Midcap growth funds fell 6.13%. And large-cap growth funds declined 3.66%. Among large caps, some of the nation’s biggest growth funds with heavy exposure to technology suffered the most. On the bright side, diversification helped offset some of the pain. A benchmark index that tracks U.S. investment-grade bonds rallied 2.2%, extending its 2025 gain to 2.74%. And stocks that trade in developed overseas markets also gained, with the MSCI EAFE index rising nearly 1% to boost its year-to-date gain to 5.81%.

Investors with a chunk of their portfolio invested in bonds benefited from the ballast that fixed-income investments offer. General U.S. bond funds rose 1.85% in February. But the big winner was general U.S. Treasury funds, which jumped 3.36%. Treasury yields, which move in the opposite direction of prices, fell down to 4.21% from 4.55% at the end of January. For Example, Our position in Vanguard Total Bond fund (VBMFX), which invests in virtually all U.S.-issued bonds, rose 2.08%. Tariff-related market volatility is lifting bonds, says Leslie Falconio, head of taxable fixed-income strategy for UBS Global Wealth Management. “Over the longer term, prolonged tariffs are a hit to economic growth,” said Falconio. “The bond market is experiencing a flight to quality given the current pocket of vulnerability in the stock market. The damage in February centers on the growing uncertainty surrounding Trump’s tariffs and other policies. So-called risk-on trades that focus on fast-growing tech stocks and bets on consumer spending were the biggest losers. Science and technology funds plunged 5.58%, wiping out gains for the year, according to Lipper Refinitiv. And consumer goods funds, or those that invest in companies that sell discretionary goods, declined 3.05%.

More defensive mutual funds held up better. In fact, they rose in value as investors moved to safe havens. Consumer goods funds, which own sellers of everyday products like cereal and tissue paper, jumped 2.15%, extending their 2025 gain to 3.51%. And utility funds, a classic defensive stock play as everyone needs to turn the lights on and run their appliances, rose 1.92%, putting it up 3.81% on the year.

Some good news? The large service side of the U.S. economy that employs most Americans grew at a brisk pace in February, but businesses said they were nervous about President Donald Trump’s tariffs and were already facing higher costs. The service side of the economy is the locomotive of U.S. growth and is less affected by tariffs and foreign competition more generally. ADP also reported a revised 186,000 increase in private-sector employment in January, up from a preliminary 183,000.

Finally, some really good news in the housing market. Mortgage rates fall to the lowest level in three months, U.S. homeowners rushed to refinance over the past week as mortgage rates fell. The 30-year fixed-rate mortgage fell to the lowest level since December at the end of February, prompting many homeowners with mortgages to refinance, according to a weekly report by the Mortgage Bankers Association, an industry trade group. The plunge in rates even bumped up home-buying demand slightly. The 30-year rate’s drop was the biggest one-week drop since last November.

As to all the tariff noise, I have been around some 50 plus years, and the more the media touts the tariff dangers it is not unexpected. I will remind everyone of a similar hysteria in 1981 when President Reagan cooperated with Paul Volker (the democratic cigar chopping Fed Chairman) and forced a mild recession. I wonder how that turned out.

Mike