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March 27, 2025 – A couple of weeks ago, NCAA college basketball March Madness was just getting underway. After several surprise upsets and some chaos among millions of brackets, we now know which teams are in the Sweet Sixteen final games. Over the past 40 years, only three men’s teams have had a long streak of winning years making it into the finals. As in the stock market, last year’s darlings may not be this year’s victors, but good companies can reinvent themselves and market volatility can work both ways.

//  by Tower Bridge Advisors

More March Madness

Tariff policy has been dominating headlines and impacting market volatility this year. The Magnificent 7 technology stocks had rebounded the last few days, but fell 3% yesterday on a day in which the Nasdaq declined 2%. This volatility has been mostly due to the potential inflationary effects of new tariffs and concerns regarding retaliatory tariffs. Whether tariffs are threatened or implemented, we are now starting to see corollary impacts on business decisions. Yesterday we found out that U.S. orders for durable goods, items meant to last three years or more, (toasters, cars, aircraft), increased by 0.9% in February from the prior month. Expectations were for durable goods orders to fall by about 1%. This comes after an upwardly revised 3.3% increase in January. The rise in durable goods orders would normally be considered very favorable, but was most likely a result of front-loading purchases ahead of tariffs taking effect.

In the durable goods report, electrical equipment, appliances, and components orders jumped 2.0%.
Orders for machinery climbed 0.2% while those for transportation equipment increased 1.5%. Transportation orders were lifted by a 4.0% rebound in demand for motor vehicles and parts and a 9.3% gain in defense aircraft and parts orders. This was offset by a 5.0% decline in commercial aircraft orders. More telling, however, is that non-defense capital goods orders excluding aircraft, which is a proxy for business spending plans, dropped 0.3% after an upwardly revised 0.9% surge in January. Capital spending outside of data centers has yet to rebound steadily.

New 25% tariffs on auto imports were announced yesterday afternoon, becoming effective April 2nd. Tariffs will not apply to auto parts made in the U.S. Previously, the administration had imposed a 20% duty on all imports from China and 25% on goods from Canada and Mexico that are not compliant with a North American trade agreement. In addition, 25% tariffs on steel and aluminum from Canada, Mexico, the European Union and other countries have been fully restored. No wonder stock and bond markets have been moving in fits and starts.

Finally, the Finals

It took almost a decade, but someone finally won Warren Buffett’s $1 million NCAA Tournament bracket challenge. The winning employee took home the grand prize after picking 31 of the 32 first-round games correctly. Buffett’s bracket challenge is not available to everyone as only employees of Berkshire Hathaway# can enter. Perhaps the winner can purchase one share of Berkshire Hathaway Class A shares which go for about $800,000 per share.

Warren Buffett has been holding onto extra cash looking for better investment opportunities and valuations as the market corrects. Market corrections are a normal part of investing cycles, and the typical drawdown in any given year has averaged about 15% over the last twenty years on the way to a 10% average annual gain with dividends. The S&P 500 has already recovered from a 10% correction from its peak in mid-March, and is down about 2.9% year to date. While technology stocks dominated returns last year, so far in 2025, Technology stocks are down 8%, while the Energy sector is up 9%, Healthcare is up 6% and Financials are up about 4%.

The yield on the 10-year treasury has fallen from 4.8% early in the year to 4.2%, but has recently risen toward 4.4%. 30-year mortgage rates have remained relatively high at around 6.8%, cramping home buying activity somewhat. Looking ahead, interest-rate futures currently imply that the chances of the Fed resuming rate cuts at its May policy meeting are only 14%, so markets may not get much help from the Fed until later in the year. That will depend upon the path of inflation and unemployment.

This is a different kind of March Madness than we are used to. Markets do not like uncertainty, but have even more trouble with moving targets. April 2nd could mark an intermediate high-water mark for uncertainty as other levies are introduced that may not be as severe as previously telegraphed. Equity futures are somewhat directionless this morning awaiting a report on initial jobless claims and pending home sales. Volatility may work in both directions as the year progresses.

Talented entertainers born this day include Mariah Carey who turns 56, and Fergie who turns 50. It is not fiction that Quentin Tarantino also turns 62.

Christopher Crooks, CFA®, CFP® 610-260-2219

 

Tower Bridge Advisors manages over $1.3 Billion for individuals, families and select institutions with $1 Million or more of investable assets. We build portfolios of individual securities customized for each client's specific goals and objectives. Contact Nick Filippo (610-260-2222, nfilippo@towerbridgeadvisors.com) to learn more or to set up a complimentary portfolio review.

# – This security is owned by the author of this report or accounts under his management at Tower Bridge Advisors.

Additional information on companies in this report is available on request. This report is not a complete analysis of every material fact representing company, industry or security mentioned herein. This firm or its officers, stockholders, employees and clients, in the normal course of business, may have or acquire a position including options, if any, in the securities mentioned. This communication shall not be deemed to constitute an offer, or solicitation on our part with respect to the sale or purchase of any securities. The information above has been obtained from sources believed reliable, but is not necessarily complete and is not guaranteed. This report is prepared for general information only. It does not have regard to the specific investment objectives, financial situation or the particular needs of any specific person who may receive this report. Investors should seek financial advice regarding the appropriateness of investing in any securities or investment strategies discussed in this report and should understand that statements regarding future prospects may not be realized. Opinions are subject to change without notice.

Filed Under: Market Commentary

Previous Post: « March 24, 2025 – Last week’s earnings from FedEx, Micron, Lennar and Nike, all on the same evening serve as a prelude to the pending earnings season. Stocks of all four companies declined 5-10% the next day as expectations for the coming months were lowered. Before we get to earnings season in about three weeks, we will see an onslaught of tariff news. There are no signs of recession yet, but the odds are higher than 30 days ago. It is probably prudent to maintain larger than normal cash reserves until passing the heart of earnings season about a month from now.
Next Post: March 31, 2025 – Don’t lose sight of the core game plan, to reduce the Federal deficit through a combination of tariffs, a reduction in the Federal bureaucracy, and tax reform. The conflict today, is that the tariff pain happens now while tax benefits come later. The mismatch roils markets. April will see a crescendo of tariff news, economic data that probably projects lower growth this year, and a likely reduction of earnings expectations as companies report first quarter results in a couple of weeks. Keeping cash reserves for now seems to be a prudent posture. »

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  • May 22, 2025 – Memorial Day Weekend is typically the unofficial start of summer for many. However, this year has been anything but typical. Corporate earnings have been holding up based on recent company reports and outlooks. Tariffs have dented a few earnings reports, but the consumer continues to spend. Credit spreads are not indicating a recession yet, although interest rates have been on the rise as Congress works on a spending resolution bill. Markets gave back some of their recent gains yesterday but are still only about 5% from their all-time highs. Not quite bear market territory. Anyone traveling this weekend to a national park should remember to bring their bear spray.
  • May 19, 2025 – Stocks have clawed back all their post-Liberation Day losses as the perceived impact of tariffs have lessened. But now comes the hard part. Whatever tariffs are imposed will have economic consequences that we are only just starting to see. The big tax bill as originally proposed is a budget buster. 10-year Treasury yields are now back above 4.5%. With hindsight equity investors overreacted after Liberation Day. The subsequent rally may have gone too far as well.
  • May 15, 2025 – Following a big rebound, the S&P 500 is flat YTD but trades at a high valuation of 23x forward earnings. Consumer spending faces headwinds from rising student loan defaults and a cooling housing market. While recession fears have eased, the economy is slowing and inflation trends remain uncertain.
  • May 12, 2025 – China and the United States have agreed to reduce tariff rates on each other by 115% leaving our tariff rate on Chinese goods at 30%. Since shortly after the shock of Liberation Day that sent equity investors into panic mode, there has been a gradual retreat from an overbearing tariff framework outlined that day. Today’s suspension of tariffs, pending further negotiations may not be a final step. But it comes right out of the Trump playbook that shoots for the moon first and then settles into a much more compromised reality later. While tariff negotiations continue not only with China but the rest of the world, investors can now focus on the next leg of the Trump agenda, tax cuts.
  • May 8, 2025 – The Federal Reserve on Wednesday held its key interest rate unchanged in a range between 4.25%-4.5% as it awaits better clarity on trade policy and the direction of the economy. While uncertainty about the economic outlook has increased further, the Fed is taking a wait and see stance toward future monetary policy. Meanwhile, the S&P 500 Index has just about fully recovered its losses following the April 2nd “Liberation Day” when major tariffs were announced on U.S. trading partners. The bounce in risk assets is welcome, but we are still looking for white smoke signals showing that progress on inflation and tariffs is being made.
  • May 5, 2025 – Investors overreacted to Trump’s early tariff overreach but may have gotten a bit too complacent that everything is now back on a growth path. While there are few signs of pending recession, the impact of tariffs already imposed are just starting to be felt. So far, no trade deals have been announced although the White House claims at least a few are imminent. The devil is always in the details. Congress will start to focus on taxes. Conservatives may balk but there is little indication to suggest they won’t acquiesce to White House pressure once again.
  • May 1, 2025 – U.S. GDP unexpectedly contracted by 0.3% in the first quarter, the first decline since 2022, largely due to a surge in imports ahead of anticipated tariffs. Despite this GDP contraction, major tech companies like Alphabet, Microsoft, and Meta reported quarterly earnings, indicating continued strength in areas like advertising and cloud computing. However, concerns remain about the broader economic outlook due to uncertainty surrounding tariffs, potentially leading to higher prices, weaker employment, and a challenging environment for the Federal Reserve regarding inflation and interest rate policy.
  • April 28, 2025 – Markets rallied as the Trump Administration suggested tariffs might be reduced against China and that ongoing negotiations with almost 100 countries are progressing, although no deals have yet to be announced. But even with tariff reductions, the headwind will still likely be the greatest in a century. So far, the impact is hard to measure as few tariffed goods have reached our shores. Early Q1 earnings reports show little impact through March, although managements have been loath to predict their ultimate impact. Stocks are likely to stay within a trading range until there is greater clarity regarding the impact of tariffs.
  • April 24, 2025 – “Headache” is the official Journal of the American Headache Society. Europe and Asia have their own publications and consortia devoted to the study of headaches and pain. The incidence of headaches may have increased for those following the stock market gyrations over the past few months, though resolution of tariff issues would go a long way toward calming markets down. Eventually. Near-term impacts on inflation and the economy may create some pain points and additional volatility if consumers and businesses retrench.
  • April 21, 2025 – Tariffs raise barriers that make imports less desirable. They serve to reduce the balance of payments. But by protecting local producers of higher cost goods, they are inflationary. The attendant decline in the value of the dollar chases investment capital away, capital necessary if reshoring of manufacturing is going to be achieved. The goal of the Trump administration should be to find the balance that favors U.S. manufacturers but retains investment capital within our borders. So far, markets suggest that dilemma hasn’t been resolved.

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