WEEKLY MARKET SUMMARY

Global Equities: US equities pulled back sharply on concerns over tariffs and hotter-than-expected inflation, falling sharply on Friday to pull the S&P 500 down -1.5% for the week. The Nasdaq Composite bore the brunt of the selling, losing -2.6% in weekly trading while the Dow Jones Industrial Average held on to a 0.4% gain. Shares of automakers were hit especially hard after the announcement of 25% tariffs on any cars or car parts produced outside the US. Small cap stocks also closed with weekly losses, down -1.6%. Shares of Developed International companies were losers as well, dipping -1.4% while Emerging markets lost -1.8%.

Fixed Income: The 10-Year Treasury yield rose during the week but pulled back sharply on Friday and ended the week unchanged at 4.26%. There was a frenzy of corporate bond issuance, both domestic and international, as corporations raced to get deals done ahead of the planned start of tariffs on April 2nd. US high yield corporate bond spreads widened a bit late in the week as concerns mount over inflation and the adverse economic impact of tariffs, but at 3.3%, spreads are still well below the long-term average of 5.3%.

Commodities: US West Texas Intermediate (WTI) Crude prices rose slightly to $69.15 a barrel during the week on new tariffs and sanctions aimed at Venezuela and Iran. Gold prices surged 3% in weekly trading, reaching $3,116/oz as investors sought out safe-haven assets.

WEEKLY ECONOMIC SUMMARY

Hot PCE: The Fed’s official measure of inflation, the Core Personal Consumption Expenditures Index (Core PCE) was hotter than expected in February at 0.4%, bringing the annual rate up to 2.8% from the prior 2.7% reading. Core goods inflation has reignited due to tariffs while services inflation moves sideways, and housing inflation declines at a gradual rate. It is quite likely that the trade war news pulled demand forward as consumers and businesses made purchases in advance of the tariffs. If this holds true, PCE could be cooler when March data is reported next month. Still, the hot data point was concerning to investors, particularly because of slower growth expectations which raise the possibility of stagflation (slow growth and rising prices).

Auto Tariffs: The latest target of the Trump tariffs is the automotive industry, with 25% across the board tariffs announced on non-US vehicles and parts. With many US automakers producing all or part of vehicles in Mexico, the tariffs are likely to lead to higher costs for nearly every major automaker selling vehicles in the US. Estimates from the Peterson Institute for International Economics forecast a $1,400 to $7,000 increase in vehicles, depending on how much of the tariff gets passed along to consumers. Before formally announcing the tariffs, President Trump convened CEOs from the top automakers for a phone call to issue a warning against raising prices. Shares of automakers fell sharply, with a UBS analyst warning the tariffs could completely erase the entire year 2025 profits for Ford (F) and GM (GM).

Consumer Confidence Slips: The latest read on Conference Board US Consumer Confidence survey slid 7.2 points to a 92.9 reading, the lowest level since January 2021. Worries over inflation and a possible recession have consumers reporting sharply lower expectations regarding “income, business, and labor market conditions”, which fell to a 12 year low of 65.2 and below the threshold of 80 that has in the past signaled a potential recession. While the survey shows a bleak outlook from consumers, spending has yet to pull back substantially.

CHART OF THE WEEK

The Chart of the Week breaks down the Core Personal Consumption Expenditures Index data into core goods, core services ex-housing, and housing components. Core goods had fallen into deflationary territory, but prices have turned sharply higher in response to the trade war. Core services seem somewhat stuck in a sideways trend, while housing, the biggest driver of overall inflation, has been steadily falling but still has a long way to go. The Fed views the sharp uptick in goods inflation as at least partially “transitory” due to tariffs. If they are correct, we should see the goods component turn lower as consumers either cut back on purchases or trade deals are struck.