Transitory Inflation?
Fed Chair Powell suggested at his Wednesday March 19ᵗʰ press conference; inflation due to tariffs may be transitory. I’m surprised the word, transitory, has not been eliminated from Powell’s vocabulary.
In addition, the Fed expects US growth to slow down to 1.7% GDP (Gross Domestic Product) from the prior 2.1% forecast, last December.
Let us discuss the first statement about tariff inflation becoming transitory. I hope Powell is correct! Will tariffs have a short, or a longer life? I do not believe it is prudent at this time, to make firm predictions about the potential impact. Tariffs will most likely lift many prices upward, especially for manufacturers. How they operate with the increased cost will be telling. Will they pass the cost to us consumers or will they absorb part or all the cost? According to a Wall Street Journal article, the BMW 3-Series, starting price approximately 47K will increase by $10,000 due to tariffs. BMW is suggesting they will absorb the 10K for a 2-month period. Going to be interesting!!
The Trump administration is attempting to lure manufacturing back to the US. How will US manufacturers operate with higher labor costs and a shortage of skilled workers? My guess is with robots unless we can resolve our immigration situation. In either case, many believe if products are being made in the United States, our costs to purchase will be higher? How will this affect our ability to compete, selling goods to other countries? I have not read any comments on this by the experts.
Will our economy slow? In later April, we will hear the first print on 1ˢᵗ Quarter 2025 US Gross Domestic Product (GDP). Some are speculating the number will be negative due to the excessive amount of goods imported by our manufacturing sector. Several US manufacturers, who depend on imported materials, are over ordering, attempting to get a step ahead, prior to their tariff costs rising.
The Federal Reserve continues to forecast 2 rate reductions in 2025. Simultaneously, the Fed has been reducing its balance sheet aggressively, letting Treasuries mature without using the proceeds to purchase a new bond. The Fed announced, from April through June, they will be using most of the maturing Treasury proceeds to purchase new bonds, now adding liquidity to the markets.
My tea leaves suggest the “Fed” is attempting to get ahead of any potential economic slowdown. I also believe the Fed is thinking the slowdown will not be significant.
Markets Mixed
Last week ending March 21ˢᵗ, 2025, witnessed the S&P 500 lower by (.36%), the Dow Jones rise .46%, the Nasdaq down (1.08%) and the Russell 2000 rise .16%.
International stocks and emerging markets were flattish, down (.08%) and (.19%) respectively.
The yield on the US Treasury ending last week @ 4.25%.
Growth vs. Value
Looking at Morningstar Style boxes on Morningstar.com, interesting to see the change in leadership between Growth and Value style stocks.
For the last month, ending March 20, 2025, the Large Value category is down (1.19%) versus the Large Growth down (8.31%). For the same 3-month period, Large Value is up 4.90% versus Large Growth down (6.64%).
Over 1-year, Large Value is higher by 11.77% versus Large Growth, higher by 8.96%.
It feels like yesterday; everyone could not stop talking how technology was leading the Large Growth stock category higher.
This is another compelling argument for true diversification within your overall portfolio. Leadership changes are never announced ahead of time.
Let us hope this leadership change, whether temporary or not, starts to lift the stock market higher!!
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The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets. Value investments can perform differently from the market as a whole. They can remain undervalued by the market for long periods of time.
