Weekly Recap: 3/3/25-3/7/25

Macro & Economic Developments

Tariffs: Trade tensions intensified this week as Trump went back-and-forth on his tariff promises. On Monday, Trump confirmed that the 25% tariffs on both Canada and Mexico would be implemented on March 4th without any negotiation. Trump stated that companies would need to “build their car plants, frankly, and other things in the United States, in which case they have no tariffs.” Canada responded, with President Trudeau stating that “Ottawa would immediately respond with tariffs on $30 billion of US goods.” On Wednesday however, Trump said that US automakers, which have a significant presence in both Canada and Mexico, would receive “a one-month tariff exemption”. On Thursday, Trump continued to alter his plans, and “signed an executive order earlier in the day exempting goods from both Canada and Mexico.” Canada then paused its retaliation. China also saw an increase in its levy as Trump increased tariffs to the region by an additional 10%. The de minimis exemption, which excluded “imports worth less than $800” from being taxed, was also ended. In response, Chinese representatives pointed to “U.S. agricultural and food products” as a likely retaliatory target. On another note, Blackrock along with other investors, purchased both “the Balboa port on the Pacific entrance to the canal and the Cristóbal terminal on the Atlantic”, which had previously been owned by CK Hutchinson, a company with ties to China. In the past, Trump had labeled the ports as potential threats, stating that China “could use the ports for military purposes” like “monitoring ship movements” and “sabotaging the waterway.”

Inflation Data: A slew of new inflation data greeted investors this week, showing both signs of weakness and stability. On Monday, ISM’s Manufacturing PMI reported a 50.3% reading, indicating the “second month in a row” of expansion. This was, however, “down from the month before and came lower than” economist expectations. Other notable figures from the report include an increase in the price paid index, which “rose by 7.5 percentage points to hit 62.4% in February.” New orders also declined “as tariff uncertainty caused many downstream consumers to take a wait-and-see approach to expenses” according to Ben Ayers of Nationwide. A private payrolls report for February indicated that “companies added just 77,000 new workers for the month”, which was significantly lower than the 148,000 figure expected. Nela Richardson, chief economist at ADP, mentioned “policy uncertainty and a slowdown in consumer spending” as potential causes for the weak print. The February Services PMI came in at 54.4, which marked a +0.7% increase month-over-month and “the eighth consecutive month” of growth. On Friday, the February non-farm payrolls data came in slightly-below expectations, reporting that “151,000 new jobs were created” and the unemployment rate “rose to 4.1% from 4%”. Although this was below the 160,000 expectation, it was more than January’s 125,000 print. Wage growth, on the other hand, increased by +4.0%, lower than the +4.1% January data. Besides reports, the Atlanta FED’s GDPnow quantitative model dipped drastically, indicating a -1.5% growth rate for the US economy in Q1. Before February 28th, the model had “been forecasting growth between 2-4% in line with most other models.” Commentary for the report stated that this was largely due to “falling personal spending and private investment.” 

Germany: As geopolitical tensions heighten over the Ukraine-Russia conflict, Germany has drafted a new budget plan to increase spending on defense and infrastructure, specifically to “exempt military spending over 1% of GDP from the debt limit, as well as a 500 billion euro infrastructure fund.” This is a big change from Germany’s previous policy of keeping the debt limit “to 0.35% of gross domestic product.” Established after the global financial crisis in 2008, the limit came under pressure in 2020, 2021, and 2022 due to factors like COVID-19 and the Ukraine-Russia conflict. Friedrich Merz, likely the new chancellor of Europe’s largest economy, reversed his previously hawkish stance on the budget. Citing that Germany will do "whatever it takes" to protect itself at a time of high geopolitical conflict, the move will also likely have effects on Bund yields. Already, “yields spiked to above 2.7%”, with analysts from Morgan Stanley stating that the economy could add “0.2% more GDP growth this year and 0.7% more next year.” 

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Earnings & Corporate Developments

Tech Updates: Technology companies continued to report earnings, announce new investments and initiatives, and prepare for more tense trade policy. For starters, Crowdstrike, a leader in the cyber-security space, forecasted that yearly EPS would be “between $3.33 and $3.45”, lower than the $4.42 consensus. On the other hand, the company brought in “$4.24 billion in annual recurring revenue”, which was a +23% increase YoY and higher than the $4.21 billion analyst expectation. Crowdstrike yearly sales forecasts met expectations, falling “between $4.74 billion and $4.81 billion for the year.” CEO George Kurtz emphasized the importance of AI in the space, stating that “as businesses of all sizes rapidly adopt AI, stopping the breach necessitates cybersecurity’s AI-native platform”. Broadcom also reported results this week, bringing in $14.92 billion in revenue for the quarter, increasing +25% YoY. In specific, revenue for AI “jumped 77% in the quarter”, with further upside expected. In terms of investment, chip-leader TSMC committed “at least $100 billion more in chip-manufacturing plants in the U.S.”, which includes “three new chip plants, two chip-packaging plants and a research and development center.” The company had already established a factory in Arizona in 2020, later followed by two more totalling $65 billion in investment at the time. However, the WSJ stated that the recent company announcements, like Apple's roll-out last week and OpenAI’s commitment earlier in the year, “are often vague and it is often unclear whether the pledges represent new investments by the companies.” Lastly, Best Buy didn’t play down the potential effects tariffs will have on its financials, citing that “around 55% of its products are sourced from China” and “another 20% come from Mexico.” Two key details mentioned by CEO Corrie Barry was that there will be “much more impact in quarters two through four versus this first quarter in terms of increased pricing” and the current data isn’t showing that consumers are buying in anticipation of tariffs. Barry also mentioned that she will “help educate” policy makers on the impact of increased trade tension on the “very global, very complex, and very difficult” supply chains. 

Corporate Responses: Multiple retail and food-related companies reported their earnings this week, notably GAP, Costco, and Abercrombie & Fitch. GAP continued its strong performance since new CEO Richard Dickson took charge. The company reported $4.15 billion in revenue for the quarter as well as an EPS of $0.54, which both beat estimates. Fortunately, “less than 1% of its product comes from Canada and Mexico, combined, and less than 10% comes from China”, with Dickson adding that the company will try to minimize the effects of tariffs on consumers.  For the year, GAP is expecting revenue to grow “between 1% and 2%”, meeting analyst forecasts, while quarterly revenue will be “flat to up slightly.” Costco, however, missed on EPS results for the quarter but beat on the top line, reporting $63.72 billion in revenue. In regards to tariffs, the company is also looking to soften the blow on consumers through supplier collaborations, stating that “a third of its U.S. sales are from imports” but “less than half of those come from China, Mexico and Canada”, pointing out that groceries in particular have “much tighter” margins. Additionally, CFO Gary Millerchip said that selective purchasing among consumers “would become even more so if tariffs and inflation grow more significant.” An example of this has been the increase in sales of “lower-cost proteins like ground beef”. Abercrombie and Fitch included tariffs in its guidance, citing their effects specifically on “freight costs and consumer spending.” Compared to a +14.0% jump in 2024, the company expects “net sales to grow by 3% to 5% in 2025”, which was lower than the +6.77% expected by analysts. In specific, leadership forecasted that “the first half will be adversely impacted by higher year-over-year freight costs and more normalized carryover inventory selling” and mentioned that "other potential incremental tariffs” outside of China, Canada, and Mexico were not included in guidance calculations. Brown-Forman, the company behind Jack Daniels, offered an encouraging perspective, citing that it was “confident that we have the right people, brands, and strategy in place to take advantage of ongoing growth opportunities.” The company missed analyst estimates in sales, bringing in $1.03 billion for FY25, but beat EPS estimates with a print of $0.57. Brown-Forman guided for organic net sales to increase by 2%-4% and an identical rise in organic operating income.

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Market Takeaways:

US Equities:

All three major indices continued to fall, with DJI the only one still positive YTD; indicates a fall in sentiment with consumer defensive positions clinging on

IWF weekly decline signals continued rotation out of growth; IWD falling this week could be sign of weakness, even in value

XLV only positive sector performance this week; important to remember for future tariff announcements and times of uncertainty 

US Macro/Fixed-Income:

Diversion between changes in 2-year yields versus 10-year and 30-year yields indicates inflation expectations in mid and long-term 

DXY pullback could benefit multinational companies who had previously cited currency rates as factors in future earnings; potential opportunity to earmark if trend continues

Smaller drawdown in HY indicates an interesting diversion from the risk-off thesis; could be investors wanting to take advantage of higher for longer rates

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My Thoughts: One of the biggest things investors are currently considering are tariffs, and due to the back-and-forth nature of Trump’s approach, formulating strategies has become substantially more difficult. However, this could be an opportunity. In my opinion, China seems to be the only trade partner that Trump is set on taxing, while Canada and Mexico could see fluctuation due to recent exemptions. Despite some retail players indicating future impacts on their financials, technology companies continue to offer favorable guidance, indicating that demand for AI could overpower the trade barriers that are being threatened. If that is so, REITs tied to datacenters, utilities, and nuclear energy stocks still hold upside. On another note, the current administration has indicated that lowering the 10-year yield is a priority which, if done, could further enforce the REIT thesis. 

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Portfolio Positioning & Tactical Insights

Portfolio Bias & Market Sentiment

Current Portfolio Bias: Neutral

Market Sentiment Overview: Markets are primarily reacting to the new tariff policy that is being announced by President Trump, even selling off companies that themselves might not be as exposed to supply chain disruptions. Certain fixed-income and indexes do, however, show that risk is still on the table, albeit a lesser amount (HY weekly performance and DJI YTD performance). Investors could be feeling that stocks that had previously carried the market off anticipated growth can’t do the same amidst more tense trade relations. Drawdowns in small-cap names also indicate a more defensive stance. 

Tactical Adjustments & Strategy

Sector & Asset Class Allocation: Increase exposure to REITs, particularly tied to datacenters, due to positive guidance from technology companies, a lower 10-year yield, and overall increase in AI/cloud demand. 

Fixed Income Positioning: Increase allocation to IG due to more investors leaning towards a risk-off approach, and strong corporate earnings guidance from the majority of big players. Relatively stable credit spreads, as well as expected cuts from the FED, could further enforce this positioning. 

Stock Style Rotation: Rotate into Growth based on cheaper multiples and strong guidance. Large-tech names are currently falling victim to the sell-off more than they should be, signalling a potential buying opportunity. Targeting companies with a strong domestic presence and wide-moats could prove lucrative. 

Risks to Monitor & Potential Impact

Macro Risks: Three macro risks that investors should monitor are changes in Trump’s tariff targets, retaliation from other countries, and weakness in the labor market. As mentioned in the headlines section, certain companies are better positioned than others due to their limited exposure to China, Mexico, and Canada. If trade relations are intensified, more companies can see their supply chains affected, making it a tougher business environment across the board. This week the labor market stayed relatively steady, but if unemployment rises and job creation slows, investors should start considering the possibility of an economic slowdown more seriously and allocate accordingly. Also, if DXY bounces back, companies relying on international sales could struggle more, coupled with the FED keeping rates higher-for-longer. 

Sector-Specific Risks: As indicated by Best Buy, some sub-sectors with complex supply chains could be severely affected by tariffs. Investors should keep an eye out for any weakness in tech guidance. Automakers should also be watched carefully because, although Trump exempted them from tariffs for a month, they could be severely affected if the tariffs end up being implemented.

Market Volatility Factors: Investors should expect further volatility due to the many headlines coming out of the White House, which is causing uncertainty. Keeping an eye out on credit spreads and the VIX will gauge the level of fear in the market. Although it might seem tempting, staying invested, tracking guidance, and analyzing new data is more important now than ever. 

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Index Performance

Factor Performance

Sector Performance:

US Macro Performance:

Corporate Bonds: 

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