Stocks Retreat as Fresh Tariffs Loom

This past week of trading began on a very strong note and showed some solid signs for investors.We saw a second consecutive week where the market displayed strong follow through from a decisively green close on Friday carryover into the following week, seeing another notable gain on Monday. This was a positive development for the market as it showed that the move had some serious buying driving the leg higher. Additionally, the S&P 500 was able to break above the resistance level around 5700 that it had failed at multiple times in the previous week. In fact, the index was able to close above this level and it’s 200-Day moving average twice early in the week. All of these occurrences were significant as they signaled that the move off of the Mar 13^th low had some powerful momentum behind it. However, unfortunately for stocks, the week did not end on Tuesday.

After stocks had rallied nearly 5% off of the recent low, the drum beat regarding tariffs began to pick back up around mid-week including the announcement of fresh Automotive-related tariffs. Just as the daily frenzy regarding this topic had seemingly quieted, which helped to provide a boost to markets, tariff talk reasserted itself strongly as we head into April 2^nd. Rhetoric surrounding policy announcements expected by this date coupled with the other fresh tariff announcements made last week combined to be too much uncertainty for the market to overcome. As this topic heated up, stocks began to sink in its wake yet again as investors have little appetite for the uncertain and arbitrary manner in which these new policies have been discussed and announced.

Tariffs were not the only negative catalyst for stocks this past week either. Most of the crucial data we were watching came in negatively as well. The Consumer Confidence and Consumer Sentiment reads from last week both showed a continued decline in these soft data points, indicating a souring amongst U.S. consumers. This was only exacerbated later in the week as Lululemon Athletica provided their Q1 guidance when they reported earnings. Their guidance for the current quarter was weak at best, foreshadowing a likely poor quarter to come. This is significant because LULU’s clientele skews upper middle to upper class and this cohort of consumers has remained steady over the past few years showing little pullback in spending. However, if LULU is providing a poor guide, this could be early evidence that this cohort is finally slowing down as well. Then finally, to effectively top off the negative news flow for the week, February’s PCE inflation report was published on Friday morning and it indicated that CORE PCE actually rose more than was expected in February. This began to rekindle fears of a potential ‘Stagflationary’ environment on the horizon due to current signs of stubborn inflation and slowing growth. The fact is the news flow over the past week was negative and stocks largely were unable to shake it off and they traded accordingly, culminating in a steep Friday sell-off.

Key Events to Watch For

April 2^nd Tariff Policy
March Jobs Report
No Significant Earnings Reports

As stocks are fresh off a midweek headline-induced reversal that saw all three major indexes finish in the red, we are likely in for another headline filled week of trading to come. The principal event to pay attention to this week will surely be any tariff announcements as they come. Almost since Inauguration Day, President Trump, has touted April 2^nd as the day that he will be announcing a bevy of fresh tariff policy, namely reciprocal tariffs. Due to some comments made by the administration recently, there is still a great deal of uncertainty about what form these new policies may take. Due to this, as we head into Wednesday, we are taking a cautious approach as this topic has proven to be an almost ever changing goalpost. Until there is some finality or clarity on the issue, we expect the market to still experience a good deal of choppiness. There is hope that despite new tariffs being expected, that perhaps April 2^nd could serve to finally provide some clarity and lift some of the weight that has sat over markets for the past six weeks.

While tariff policy announcements will certainly take up a lot of airtime in the week to come, this is not the only important development to watch for. On Friday, the March Jobs report will be revealed, and this is sure to draw heavy scrutiny from investors. In the wake of the significant number of Federal employees that have been let go, as I mentioned a few weeks ago, at some point this is likely to show up in economic data. Since many of the terminations occurred in March, this is the first jobs report that would likely begin to show any deterioration in the labor market related to this happening in the background. While analysts’ expectations are that the unemployment rate will remain the same, the release of this report is surely one to be aware of.

On the earnings front, this coming week actually does not have much to offer as Q4 earnings season is in the books. This is likely a good thing as investors are certainly not deprived of market-moving headlines at the moment. However, with that said, Q1 earnings season will begin in the following week with a handful of the major Financials kicking things off. It is good to keep this on your radar of what’s to come since the commentary and guidance provided by the Financials will provide some good insights into the economy and serve as another datapoint on the apparent slowdown that we are experiencing.

Thank you for reading this week’s edition of the Weekly Market Periscope Newsletter, I hope you enjoyed it. Please lookout out for the next edition of the newsletter as we will give you a preview of the upcoming week’s important market events.

Thanks,