Markets Await for Further Clarity

1. Solid Economic Data. While consumer sentiment and confidence indicators have been weak tied to the uncertainties over upcoming tariffs, we were encouraged with other economic data last week: Retail sales missed estimates but still grew a healthy 3.1% y/y.  We would characterize the consumer as “choiceful” – to quote Brian Cornell of Target.  In addition, Bank of America credit card data showed consumer spending rose 2.4% on a three-month annualized basis. Initial jobless claims remain impressive and still well below the recessionary levels with a four-week average of 224K claims per week (recessionary levels of 350-375K). But the real encouraging data came from the housing sector: Existing Home sales rose 4.2% m/m and existing home sales rose 11% m/m. This shows the underlying demand especially as interest rates and mortgage rates fall.  The 30-year fixed mortgage has fallen from 7.4% to 6.7%.  We likely have to get closer to 6% to see more demand in the market, but we still believe the supply deficit in housing is a powerful backdrop for the industry.

The S&P 500 was up 0.50% on the week with yields lower across the curve. This was the S&P 500’s first weekly gain in four weeks amid the tariff and economic uncertainty. A major part of the improved performance was the lack of any major headlines from the Trump administration relating to trade or tariffs. April 2^nd  is still the date to watch, being the proposed day for the announcement of reciprocal tariffs. Until then, markets will likely remain volatile. Into the volatility, we have been adding to our favorite positions.  Our cash position has gone from 9% in the past 4 weeks to 3% as we added to several names: AMZN GAP BAC WFC SLB PWR ETN PANW BA and a new position in NEE.

Chart 1: Mortgage Rates Have Followed Yields Lower in 2025^[1]

2. Mixed Corporate Highlights Ahead of Q1 Earnings. The first quarter earnings season kicks off on April 11^th with JP Morgan, Morgan Stanley, Wells Fargo, and the Bank of New York. The street is looking for 7.1% y/y earnings growth for the S&P 500, which would mark the seventh straight quarter of earnings growth. But since the beginning of 2025, estimates have come in, down from the previously expected 11.6% y/y earnings growth for the first quarter. Understandably companies are expected to be more conservative with forward guidance.  We still believe earnings for the full year will be up 10% y/y – consistent with a 2% GDP economy.   

Chart 2: Expected Earnings Growth Across Sectors for Q1 2025^[2]

3. Fixed Income.

US Treasury yields were lower across the curve last week with the 2, 10, & 30- year yields falling 7, 7, & 3 bps, respectively. The broader move came on the back of weaker retail sales and some dovish commentary by Fed Chair Powell in post-meeting comments, however, the summary of economic projections by the Fed showed lower expected growth and higher expected inflation, with more members now seeing 0-1 cuts for the year instead of 2.

Credit spreads were flat across investment grade and high yield last week; month to date, investment grade spreads have widened by 4 bps & high yield are wider by 29 bps. Credit ratings remained steady last week as the main rating agencies issued 43 upgrades and 43 downgrades.  Within those changes, Health Care had the most upgrades, while Communications had the most downgrades.

Tax-exempt yields were lower across the curve last week, though underperforming treasuries, as yields were lower by 1-3 bps across the curve.

4. The Week Ahead.

Earnings – Tuesday: MKC; Wednesday: CTAS, DLTR, PAYX; Thursday: LULU.

Economics – Monday: PMI Manufacturing, PMI Services; Tuesday: Building Permits, FHFA Home Price Index, Consumer Confidence, New Home Sales; Wednesday: Durable Orders; Thursday: Continuing Jobless Claims, Q4 Final GDP, Initial Claims, Pending Home Sales; Friday: Personal Consumption Expenditure Index, Michigan Sentiment.

Stephanie Link’s TV Schedule:

Return for Selected Indices^[3]

Sources:

^[1] Source: FactSet. As of March 21, 2025.

^[2] Source: FactSet. As of March 20, 2025.

^[3] Source: Bloomberg. As of March 24, 2025.

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