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Slowing Growth + Stubborn Inflation = Defensive Positioning

by Fortem Financial March 24, 2025

The volatile risk-off backdrop has continued. Economic concerns have surged with the U.S.-led trade war moving into high gear. The current turbulence may yet provide a good buying opportunity in risk asset markets but probably from lower than current levels. Whether equity markets rebound or continue sinking hinges on the outcome of the trade war and whether the endpoint is: a) meaningful protectionism that soon undermines the global economic expansion, or perhaps continued high uncertainty that persists, or b) something more similar to the 2018-19 trade war episode, which slowed growth for a time but was not lethal for the global economy.

 

Key takeaways:

 

  1. The Fed decision was as expected, with no change in rates and two cuts projected in 2025. The downward move in yields and equity rally appears to be driven by the announcement that quantitative tightening will be reduced, coupled with Powell’s generally dovish tone.
  2. The Fed marked down their GDP forecasts from 2.1% to 1.7% for 2025 and inflation up to 2.8% from 2.5%.
  3. We expect the employment outlook to become a more important factor for the Fed due to a weakening economy and weaker immigration trends.
  4. Headline Fed retail sales missed expectations at +0.2% m/m versus consensus of 0.6%. This certainly doesn’t suggest a robust consumer, as headwinds begin to mount related to policy uncertainty and tariffs related to inflation.
  5. The March University of Michigan Consumer Sentiment Index missed estimates, falling to 57.9 from 64.7. Long-term inflation expectations jumped to 3.9%, the highest since the early 1990s.
  6. Because of heightened policy uncertainty, many consumers and businesses may hesitate to spend, invest, and hire. This hesitation, along with the impact of tariffs, government spending cuts and lower immigration, is slowing economic growth.
  7. Reciprocal tariffs are the least concerning as the threat of higher tariffs will force countries to negotiate. If countries lower their tariff rates to avoid reciprocal tariffs, that is positive for global growth.
  8. As of Oct 1, EPS estimates for the S&P 500 for 2025 were $277. Since then, the estimate has fallen by 3%. We expect it to fall by at least that much again, depending on how weak the economy becomes.
  9. We think the trend for stocks is lower until there is more clarity on tariffs. Post April 2 (maybe not until May), things may become clearer and provide a more constructive investment environment as investors begin to shift their focus to potential tax cuts.
  10. According to Strategas, there are more energy stocks in uptrends than in technology.

Source: Strategas

 

Market and Index Changes for the Week Ending 3/21/2025

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments. Data provided by Refinitiv.

 

Sincerely,

Fortem Financial
(760) 206-8500
team@fortemfin.com

 

 

Latest News

 

US planning to exclude sector-specific tariffs on April 2, Bloomberg News, WSJ report

U.S. President Donald Trump's administration is likely to exclude a set of sector-specific tariffs while applying reciprocal levies on April 2, Bloomberg News and the Wall Street Journal reported, citing officials.

Reuters

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US business activity rises in March, but sentiment deteriorates further

U.S. business activity picked up in March, but growing fears over import tariffs and deep government spending cuts continued to weigh on sentiment and prospects for the rest of the year.

Reuters

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Brian Amidei, along with Partners Joseph Romano and Brett D'Orlando have also been named *2014, 2015, 2016, 2017, 2018 Five Star Wealth Managers!

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The Five Star Wealth Manager award is based on 10 eligibility and evaluation criteria: 1) Credentialed as an investment advisory representative (IAR) or a registered investment advisor; 2) Actively employed as a credentialed professional in the financial services industry for a minimum of five years; 3) Favorable regulatory and complaint history review; 4) Fulfilled their firm review based on internal firm standards; 5) Accepting new clients; 6) One-year client retention rate; 7) Five-year client retention rate; 8) Non-institutionalized discretionary and/or non-discretionary client assets administered; 9) Number of client households served; and 10) Educational and professional designations. The inclusion of a wealth manager on the Five Star Wealth Manager list should not be construed as an endorsement of the wealth manager by Five Star Professional or the magazine. The award methodology does not evaluate the quality of services provided. Additional information about this award is available at: fivestarprofessional.com/2016FiveStarWealthManagerMethodology.pdf
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