Trade tensions weighed on the market as the S&P 500 fell for the third week in a row and posted its steepest weekly decline since last September. The index recorded a -3.1% total return, faring slightly better than the NASDAQ’s -3.4% result, while the Dow fell 2.3%. The NASDAQ entered a correction on Thursday, as sharp declines for many of its technology stocks left the index more than 10% below a high reached a couple weeks earlier as well as its record level set nearly three months ago. While the S&P 500 and Dow were also down sharply from their recent peaks, those indexes didn’t fall below the 10% correction threshold. If you have money on the sidelines waiting to get into the market this is probably a good time to move some more money into. stocks. Today, we lost an hour of sleep due to daylight savings time which was created by Benjamin Franklin. The premise rising earlier would economize candle usage and save people money (very DOGE like). I have broken down this week’s update using some of Franklin’s other inventions.
Franklin Stove
Markets need to heat up. Stock prices continue to overreact to the threat of tariffs. A threat that will now hang over markets until April 2. That is the day that not only Canada and Mexico will face tariffs, but other economies like the European Union, will be subject to reciprocal tariffs. A reciprocal tariff, matches what other countries’ tariffs are dollar for dollar with the aim of bringing trade into balance. Balanced trade would be good for our economy. Markets are reacting negatively more so due to the messenger than the message. The policy has merit. Tariffs are charged to importers, this can dissuade buyers from purchasing goods from tariffed countries which hurts those nations’ economies and correspondingly helps U.S. companies. Ultimately the threat and the willingness to act on the threat, will cause some foreign countries to seek agreements to avoid tariffs. Trade agreements probably won’t eliminate the trade imbalance but will likely be beneficial enough to the U.S. to reduce the imbalance.
Lightning Rod
European governments are trying to protect their people. The lighting rod they are using is increased stimulus spending. The stimulus is the European reaction to US foreign policy. Germany’s government agreed to loosen the country’s constitutional restrictions on borrowing, enabling one trillion euros ($1.08 trillion) or more in spending on defense and infrastructure. The move was in response to the U.S. pulling back in Ukraine. As a result, the U.S. dollar was down 2.4% for the week. That is the dollar’s biggest weekly decline since November 2022. In contrast, the euro was posting its biggest weekly gain versus the dollar since 2009.
Bifocals
It is sometimes difficult to see the strategy behind the administration’s frenetic pace of activity. The President gave his address to the joint session of Congress, I was hoping he would provide the bifocals to see the strategy. Not sure that he did that. However, it is clear that the administration is focused on tariffs and government layoffs for now. They need to shift the focus to more market-friendly policies, like the tax cuts and deregulation. The President did mention both briefly. I think the markets would have reacted more favorably to the speech had he spent more time laying out his economic agenda in the speech. I believe that once we get into April the administration will shift focus from trade to taxes and deregulation. This I believe will be the catalyst for the next leg higher in this bull market.
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