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WEEK AHEAD
March 24-28, 2025
Our trend following technical signals maintains a level of calmness. Our tactical position remains cautiously optimistic in a fully allocated position for now.
Market Sentiment vs. Economic Reality: A Study in Contradictions
The dance between consumer sentiment and the Federal Reserve's hard data is at odds, drawing a line in the sand between Wall Street and Main Street. Investors see a cooling economy, while the Fed insists the numbers say otherwise.
Retail sales for February were a mixed bag—disappointing versus expectations but still eking out a 0.2% month-over-month gain, an improvement over the prior month. Meanwhile, industrial production, a core signal we follow, flexed its muscles, surging 0.7% against forecasts of 0.2%. That's the kind of strength that keeps recession calls at bay, at least for now.
Over at the Fed, policymakers left interest rates untouched at last Wednesday's FOMC meeting, opting for a cautious "wait-and-see" stance. But the real intrigue? The return of "transitory inflation" as the base case—this time, courtesy of potential tariffs under a second Trump administration. It seems inflation has a habit of disappearing and reappearing, much like campaign promises.
Economic growth projections are losing altitude, with GDP now expected to clock in at 1.7% for 2025, down from a prior 2.1% estimate. The downward drift continues into 2026 and 2027, with forecasts trimmed to 1.8% from 2% and 1.9%, respectively. A soft landing, or just a slower descent?
Markets Find Their Footing—Barely
Equities, caught between economic sluggishness and dovish Fed hopes, managed to regain some footing. The S&P 500 posted a modest 0.53% weekly gain, narrowly escaping a fifth consecutive week of losses. The rally was bolstered by softer economic data, a tamer inflation report, and the Fed's still-intact plan to cut rates later this year.
Standout performers? Berkshire Hathaway leads the S&P 500's top-10 stocks year-to-date with a 15.14% gain, while gold—Wall Street's perennial fear barometer—has soared 14%, reflecting persistent geopolitical and economic jitters.
The biggest corporate headline of the week belonged to Google, which made a splash with its $32 billion all-cash acquisition of Wiz, a cloud cybersecurity platform that will fortify Google's AI ambitions. It's the largest deal in the tech giant's history, underscoring just how vital cybersecurity has become in an AI-driven world.
What is Ahead
All eyes are now on April 2nd when President Trump's reciprocal tariffs are slated to take effect—an event that could force markets to reckon with the reality of inflation beyond the Fed's carefully curated narrative. In the meantime, investors will parse through upcoming reports on new home sales, consumer confidence, GDP, and personal spending for further clues. As the market toggles between sentiment and hard data, a semblance of normalcy may finally emerge—or, at the very least, a new equilibrium.
"I do think with the arrival of the tariff inflation, further progress may be delayed if the SEP doesn't really show further downward progress on inflation this year. And that's really due to the tariffs coming in. So, delayed, but if you look at our forecast, we do see ourselves getting back into the low twos in '26, and then down to two by '27, of course highly uncertain."
—Chair Powell's FOMC Press Conference, March 19th, 2025
Tariff Sequel: April 2nd's D-Day - Will the "Dirty-15" Have a Hollywood Ending?
Ten days. Ten days until the economic equivalent of a high-wire act without a net. April 2nd looms, the date the White House has set for its "Reciprocal Trade & Tariffs," a policy designed, we are told, to open markets, shrink deficits, and shower American workers with prosperity. But, as any seasoned trader knows, there's no such thing as a free lunch, and this particular meal comes with a side of potential market volatility, and a hefty dose of inflation, as Fed Chair Powell has already warned.
In its quest for "fairness," the administration has targeted what Treasury Secretary Bessent has recently described, with a flair for the dramatic, as the "Dirty 15." This elite cadre reportedly represents the top 15% of global economies, those nations deemed to have an unfair advantage through tariffs or trade surpluses:
Take a look at India, a nation with a $40 billion trade surplus and a critical supplier of generic pharmaceuticals to the U.S. As reported, nearly 50% of our generic medicines, encompassing nine of the top ten prescriptions, originate from India. A 10% tariff on these drugs would hit American consumers hard, potentially driving up our healthcare costs. Yet, India's average 38% tariff on U.S. agricultural products, compared to our paltry 2.59%, cries out for a response. The question is, will that response be a 35% tariff on Indian farm goods, triggering a potential trade war and disrupting supply chains?
The sheer logistical challenge of implementing these tariffs is staggering. As reported by financial analysts, the administration is attempting to create a dynamic tariff schedule, adjusting rates based on real-time trade flows and economic indicators. This level of complexity raises concerns about bureaucratic bottlenecks and the potential for unintended consequences.
The administration's approach, while presented as a matter of economic justice, is fundamentally a high-roller's gamble. A departure from traditional diplomacy, a calculated use of economic leverage to force concessions. Can the "dirty 15" be coerced into becoming the "dirty-zeros" by the April 2nd deadline? The next ten days will be a critical test of the administration's economic strategy, and the world's markets will watch with bated breath. Click to see to Reuters chart: "Average Tariff Rates of the US and its Top 15 Trading Partners.
Advisory services offered through Sowell Management, a Registered Investment Advisor. The views expressed represent the opinion of Sowell Management. The views are subject to change and are not intended as a forecast or guarantee of future results. This material is for informational purposes only. It does not constitute investment advice and is not intended as an endorsement of any specific investment. Stated information is derived from proprietary and non-proprietary sources that have not been independently verified for accuracy or completeness. While Sowell Management believes the information to be accurate and reliable, we do not claim or have responsibility for its completeness, accuracy, or reliability. Statements of future expectations, estimates, projections, and other forward-looking statements are based on available information and Sowell Management’s view as of the time of these statements. Accordingly, such statements are inherently speculative as they are based on assumptions that may involve known and unknown risks and uncertainties. Actual results, performance or events may differ materially from those expressed or implied in such statements. Investing in securities involves risks, including the potential loss of principal. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. International investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles, or from economic or political instability in other nations. Past performance is not indicative of future results.