Weekly Market Update 3-17-25
Unwinding 4 decades of Neo-Liberalism is going to hurt
Last Week
Another week, another wild ride in multiple markets. Stocks in particular, exhibited huge intra-day volatility as we come to grips with the idea that President Trump meant what he campaigned on, an end to globalization and the Neo-Liberal World Order. In his first term President Trump liked to ask crowds, “How’s your 401 K?” as stocks soared on his pro-business economic policies. The message of the second term came in loud and clear from both the President and Secretary of Treasury Bessent last week and this Sunday, we are in a period of transition and a reversal of globalization and easy immigration policy requires some transitory discomfort. Stocks were hammered most of the week, recovering some Friday on what could be described as a short-covering dead-cat bounce rally. High-Yield corporates and municipal bonds also took it on the chin. In the case of municipals, we had the combined effect of a heavy supply calendar, un-favorable seasonals and general skittishness given broader market turmoil. The treasury market benefited somewhat on the flight to quality, risk-off pummeling of all things not risk-free. However, while February CPI came in a bit weaker than expected, inflation is still outside the Fed’s comfort zone. Moreover, the University of Michigan Sentiment numbers on Friday showed 1-year inflation expectations, 4.9% the highest in over 2 years. Unfortunately, the Consumer Expectations numbers came in at the lowest in 2 years. At the same time, gold broke through $3,000 oz for the first time ever. Stagflation anyone?
· The S&P 500 fell 2.21% for the week. The average daily move was 1.49%.
· The NASDQ dropped 2.43% for the week. The average daily move was 1.99%.
· The 2-year Treasury yield increased 2 basis points, closing at 4.02% on Friday. Year over year high 5.04% and low 3.54%.
· The 10-year Treasury yield increased 1 basis point for the week, closing at 4.31% on Friday. Year over year high 4.79%, and low 3.62%
· The VIX Index declined 6.85%, closing at 21.77 on Friday. Year over year high 38.57 and low 11.86
· The MOVE Index declined 3.26% for the week, closing at 101.01 on Friday. Year over year high 136.25 and low 82.49
· 5-year Investment Grade Corporates (as measured by Markit CDX) spreads widened 4 basis points for the week, closing at 55 bps on Friday. Year over year high 61 and low of 47.
· 5-year High Yield corporate debt (as measured by Markit CDX) spreads widened 20 basis points for the week, closing at 346 basis points on Friday. Year over year high 382, and low 289.
· The US Dollar Index (DXY) was mostly unchanged for the week, closing at 103.71 on Friday. Year over year high 109.65 and low 100.38
· WTI Crude was nearly unchanged for the week, closing at 67.18 on Friday using the April WTI Futures contract. Year over year high of front contract 86.91, and low 65.75
· Gold, as measured by the April futures contract, jumped 2.99% for the week, closing at 3,001 on Friday at a new all-time high. Year over year high of front contract 3,001, and low 2,126.
The Week Ahead
It’s Fed FOMC week! On Wednesday the Fed will announce policy along with the latest “Dot Plot” and “Statement of Economic Projections.” Chairman Powell and his colleagues have been very consistent since their January meeting, the economy is still relatively strong, the fight against inflation is still ongoing, and they will be hesitant to aggressively ease monetary policy. Additionally, the committee needs to evaluate what President Trump’s trade policies will have on the economy and as of now, they are still flying a bit blind in my opinion or as the Chairman put it in the FOMC December 2023 meeting, “Driving on a foggy night and walking in a dark room with furniture.” Currently Fed Funds Futures and OIS markets are predicting a 100% chance of 2 rate cuts this year and a 50% chance of another cut. The risk to the market is probably 1 cut gets removed from expectations post-meeting press conference.