Measuring shifts in uncertainty is a slippery beast, but it’s easier to intuit when big changes unfold vs. the recent past. We’re knee-deep in one of those moments. One of the tell-tale signs: the US stock market is demanding a higher risk premium to compensate for the spike in uncertainty, a.k.a. prices are falling, which translates to a higher expected return for some forward time horizon.
Macro Briefing: 31 March 2025
US core inflation remained “sticky” in February, based on the core PCE index, which is closely monitored by the Federal Reserve. Core PCE ticked up to a 2.8% year-over-year pace, well above the Fed’s 2.0% inflation target. “It looks like a ‘wait-and-see’ Fed still has more waiting to do,” said Ellen Zentner, chief economic strategist at Morgan Stanley Wealth Management. “Today’s higher-than-expected inflation reading wasn’t exceptionally hot, but it isn’t going to speed up the Fed’s timeline for cutting interest rates, especially given the uncertainty surrounding tariffs.”
Book Bits: 29 March 2025
● The Behavioral Portfolio: Managing Portfolios and Investor Behavior in a Complex Economy
Phillip Toews
Summary via publisher (Harriman House)
The investment advisory industry is beset by two largely unacknowledged problems. First, the history and risks of both stock and bond portfolios far exceed what most investors and advisory practices can endure. Second, the approach that most advisors take to communicate about portfolios does virtually nothing to prevent investors from known biases and bad decision making. In The Behavioral Portfolio, Felipe Toews guides advisors build all season’s portfolios designed to both invest optimistically and address the real-world contingencies of investing in a high debt world. He begins by re-defining foundational portfolio objectives such such as gains with the market, low risk of extreme losses, and protection against high inflation. He then walks us through the process of quantifying and building these portfolios, illustrating that in so doing, advisors can improve probabilities of success.
US Economic Growth Remains On Track To Slow In Q1
Economic output is estimated to downshift sharply in next month’s official GDP report for the first quarter, based on the median nowcast from several sources compiled by CapitalSpectator.com. Recessionary conditions will likely be avoided, at least for now, but Q1 data appears set to highlight an increased vulnerability in Q2 and beyond.
Macro Briefing: 28 March 2025
US jobless claims edged lower last week, holding at a middling level relative to recent history. Initial claims for unemployment insurance eased to 224,000, seasonally adjusted, which reflects a low number compared with the historical record and suggests ongoing growth, or at least stability, for the labor market.
Bonds Continue To Offer A Haven Amid High Macro Uncertainty
President Trump’s latest announcement on tariffs is a reminder that macro uncertainty is high and will probably remain so for the near term. “What we’re going to be doing is a 25% tariff on all cars not made in the US,” he said on Wednesday. It wasn’t exactly a surprise, given the President’s preference for tariffs, but it’s another wake-up call that the White House intends to pursue its policies, which suggests a rough ride for making assumptions based on the standard playbook for the economy and financial markets.
Macro Briefing: 27 March 2025
Trump announces 25% tariffs on imported autos, which are expected to raise prices on cars in the US. “We’re looking at much higher vehicle prices,” said economist Mary Lovely, senior fellow at the Peterson Institute for International Economics. Roughly 45% of US-sold vehicles are imported, with the largest percentage coming from Mexico and Canada. The automakers that are most vulnerable are Volvo, Mazada and Volkswagon, which have the lowest share of their US-sold vehicles manufactured in this country, according to Wards Automotive and Barclays research.
Low-Volatility Strategy Continues To Lead Equity Factors In 2025
The US stock market is struggling this year, but the low-volatility equity risk premium is still outperforming by a wide margin year to date, based on a set of ETFs through Tuesday’s close (Mar. 25). The solid increase for the risk premium so far in 2025 is especially stark compared with the modest loss for stocks overall.
Macro Briefing: 26 March 2025
US Consumer Confidence Index fell in March for a fourth straight month. The latest decline marks a drop below “the relatively narrow range that had prevailed since 2022,” said Stephanie Guichard, a senior economist at The Conference Board. “Of the Index’s five components, only consumers’ assessment of present labor market conditions improved, albeit slightly. Views of current business conditions weakened to close to neutral. Consumers’ expectations were especially gloomy, with pessimism about future business conditions deepening and confidence about future employment prospects falling to a 12-year low.”
US Economy Is Slowing, But Recession Risk Remains Low
New data published on Monday reaffirm that US economic is still growing and the odds remain low that a recession has started or is imminent. The rapidly changing state of tariffs could change the outlook, but for the moment economic activity looks relatively resilient.