Stocks Drop on Tariff Concerns; Bonds Down

Good morning and welcome to the last day of March,

The Dow (-1.0%), NASDAQ (-2.6%), and S&P 500 (-1.5%) each fell sharply for the week, despite starting the week with solid gains.  Taxable bonds fell about 0.1% while tax-free municipal bonds fell 0.9%.  The 10-year Treasury yield gained 0.01% to finish the week at 4.26%.

It has always been stated that the markets do not like uncertainty, and that is exactly what is happening right now with the Trump administration’s policy on tariffs.  Tariffs on again, off again then delayed, then increased.  Gee, where’s the uncertainty?  The week started off strong with hopes that the tariffs would not be as onerous as thought.  Then, the concerns flared up again when President Trump announced tariffs on automobile imports.  In short, the long-lasting impacts of tariffs are unclear.  Some economists believe it could be inflationary, while others believe the long-lasting effects will be favorable to the US economy.  The only thing that is certain is that President Trump is using tariffs as a weapon to get other countries to do what he wants and believes is in the best interest of the US economy long term.  The effectiveness and impacts of the tariffs over the short- and long-term are also uncertain, which is the driver behind the recent market losses.  Simply put, the markets don’t like uncertainty.

As for economic data, jobless claims have fallen marginally, suggesting that the job market remains healthy, with claims being low by historical standards.  The Fed-favored inflation gauge – Personal Consumption Expenditure (PCE) – was in line with economists’ expectations, except that core inflation was marginally higher.  While slightly elevated, it is not enough to warrant the Fed to raise interest rates, but it could delay its next interest rate cut.  Thus, it’s clear that the markets are not moving on economic data, but fears / expectations of what might be ahead because of the tariffs.

Have a great day and terrific week, as welcome April!

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