Weekly Market Commentary

-Darren Leavitt, CFA

Economic growth concerns weighed on US financial markets as manic trade policy fostered uncertainty and volatility.  It was a hectic week as investors tried to make sense of Trump’s tariffs on Canada, Mexico, and China.  The announcement that there would be 25% tariffs on Mexico and Canada quickly morphed into levies on non-compliant USMCA agreements, with tariffs on autos delayed until April 2^nd.  Treasury Secretary Scott Bessent conveyed the idea that markets will need to detox in the short term from the changes in policy before reaping their benefits.  VIX, a measure of market volatility, continued to rise and will likely stay elevated until investors have some policy resolution.  Ten of the eleven S&P 500 sectors lost ground last week, with the Financials, Consumer Discretionary, and Energy sectors taking the brunt of the sell-off.  The healthcare sector was able to post a small gain.  European markets continued to outperform US markets.  Germany’s shift away from its Black Zero policy was quite an extraordinary move and opened the door for unlimited spending on defense and $500 billion dollars in near-term infrastructure spending.  The policy shift hammered German Bunds while boosting German equities by nearly 3.5%.

The S&P 500 fell by 3.1% and breached its 200-day moving average before bouncing back in Friday’s session.  The Dow lost 2.4%, the NASDAQ tumbled 3.5%, and the Russell 2000 shed 4%.  Fourth-quarter earnings results from Target and Best Buy offered a warning about the consumer and the impact of higher prices on their respective bottom lines.  Broadcom announced a great quarter and provided a positive outlook for AI infrastructure cap-ex that helped propel the beaten-down Semiconductor sector to a 3.2% gain on Friday.

Longer-tenured US Treasuries sold off during the week. The 2-year yield closed the week unchanged at 4%, while the 10-year yield increased by nine basis points to 4.32%. Significant changes in the outlook for Fed Monetary policy due to US growth concerns hammered the US Dollar index, which fell by 3.5% this week.  Notably, the Euro strengthened to 1.0842, relative to the dollar.

Oil Prices continued to fall.  WTI lost 3.7% or $2.60 to close at $67.11 a barrel.  Gold prices increased by $66.30 to close at $2916 an Oz.  Copper prices rallied 3.7% on tariff talk, closing the week at $4.71 per Lb.  Bitcoin closed a volatile week at $86,600.

Economic data for the week was mixed.  ISM Manufacturing decelerated to 50.3 from 50.9, showing elevated prices and weakening employment in the manufacturing sector.  ISM Services accelerated to 53.5 from 52.8 but also showed increases in prices.  The much anticipated Employment Situation report showed an increase of 151k in Non-farm Payrolls, which was shy of the consensus estimate of 160k but above the whisper number of 125k.  Private payrolls increased by 140k versus the estimated 145k.  The Unemployment Rate increased to 4.1% from 4%.  Average Hourly earnings increased by 0.3% month-over-month while the average workweek was unchanged at 34.1 hours.  Most economists I read think this data will soften over the next several months, which also plays into the waning growth narrative.  Initial Jobless Claims declined by 21k to 221k, while Continuing Claims increased by 42k to 1.897M.