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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.

//  by Tower Bridge Advisors

Last week’s big economic event, the FOMC meeting, turned out to be fairly a non-event. The Fed kept interest rates steady as expected while raising its inflation forecast and lowering its outlook for economic growth. There was only a slight downward movement in the 10-year Treasury yield while stocks nudged up slightly.

To me, however, the big news of the week was a set of earnings reports from four companies, all leaders in their segments, FedEx#, Lennar#, Micron, and Nike. All four saw their stock prices take a 5-10% plunge after earnings were announced. The declines all related to a gloomy forward-looking outlook for the months ahead. The causes varied. In some cases, it was margin pressure from slackening demand. Some were affected by tariffs increasing input costs. While all the news required a downward adjustment to future expectations, none forecasted an outright earnings or revenue decline in the months ahead.

The question remains; are we in for a soft patch with earnings growing modestly and inflation staying stubbornly above the Fed’s 2% target, or are we on a slide into recession? Read a thousand opinions and you are likely to get a thousand different opinions. This week’s key data will be consumer confidence readings from the Conference Board and the University of Michigan. They both have been declining at a disturbing pace since Inauguration for obvious reasons. There hasn’t been any slowdown in orders from Washington pushing for rapid change. Change brings indecision, at least until one understands the rules of engagement.

It certainly hasn’t helped that initial pronouncements frequently get rolled back either because they were poorly constructed or because they run into legal barriers. The number of Federal workers who have actually been let go and are now off Federal payrolls completely is still barely over 1% of the Federal payroll. That is certain to grow over the coming months. But just as Covid supply chain disruptions plagued the economy and ignited inflation, the psychological impact of all the pronouncements coming from the White House have not only created consternation among consumers, and a slowdown in capital spending commitments from corporations waiting for the dust to settle, it is beginning to create bottlenecks and uncertainty within the Federal bureaucracy.

As we have noted in recent weeks, fixing something broken takes time. While the DOGE team wants to move quickly, cutting muscle with the fat isn’t the best solution. Elon Musk admits that he oversteps at times but promises to fix the mistakes quickly. Time will judge that. But in the meantime, we all wait for the flurry to slow down.

Fortunately or not, the deluge of Executive Orders shows no sign of abating. Over the weekend top executives at Fannie Mae and Freddie Mac were fired. This is one marketplace where mistakes will be treated harshly. Bonds of the Federal Home Loan Bank, Fannie Mae and Freddie Mac are AA+ or AAA, in line with ratings on U.S. government bonds. Any actions that cause even the slightest twinge of risk that Trump might do something to raise the specter that the government might back away from its implied guarantees will roil mortgage markets. So far, that’s a risk. Layoffs at the Social Security Administration and at the IRS threaten to slow payments to seniors and delay tax refunds. Again, so far this is a risk, not a reality but it bears watching.

Over the next two weeks the focus will be on tariffs. The reprieves granted to Mexico and Canada run out this week. Hints they may be extended or modified have futures rising in the pre-dawn hours. The Commerce Department is supposed to roll out a roadmap for reciprocal tariffs on or about April 2nd. Hopefully, as all this gets sorted out in the weeks ahead, the disruptive phase of Washington’s plan will start to give way to greater stability as regulations are stripped away, government downsizes, and deficits start to stabilize. But with that said, through February, the nation’s deficit is running $300+ billion higher than a year ago courtesy of higher interest expense plus increased Social Security and Medicare costs, all deemed untouchable by Trump, at least for now. The benefits from government downsizing will take some time to evolve.

Shortly after the tariff announcements take effect, first quarter earnings season will begin. Judging from the four aforementioned companies that reported last week, one should be apprehensive even accounting for the 5-10% correction in stock prices over the last 8 weeks. FedEx is the nation’s largest trucker. Lennar is the second largest homebuilder. Nike is the leader in footwear. Micron is the largest producer of memory chips in the U.S.

While there are still no overt signs of recession, investors remain apprehensive. Some have moved money to other markets like Europe on the cusp of spending big to become less dependent on the United States. Money is fungible and will go where opportunities are best.

Without trying to make a silk purse out of a sow’s ear, Trump watches markets daily (even if he professes he doesn’t!). While 5-10% corrections are reasonably normal, he doesn’t want the decline to get out of hand. In the past, if he thought the tariff impact was too overbearing, he would back away or make multiple exceptions. This morning’s headlines suggesting some tariff moderation may be forthcoming, reinforces that conclusion. At any rate, markets hate uncertainty and they certainly hate uncertainty with a negative bias. The next few weeks could be disruptive and telling. But if the growth slowdown eases as we move toward summer, there is some hope on the horizon. In the meantime, keeping extra cash reserves seems prudent.

Today, Jessica Chastain is 48. Peyton Manning turns 49 while Jim Parsons reaches 52. Most of us have never heard of Carol Kaye but she was one of the most prolific studio musicians ever heard on literally thousands of different recordings. She was a bass guitarist. Close your eyes and “listen” to Sonny and Cher’s “The Beat Goes On” or Nancy Sinatra’s “These Boots are Made for Walking”. That’s her you hear in your head. Carol Kaye celebrates her 90th birthday today.

James M. Meyer, CFA 610-260-2220

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 20, 2025 – Fed Chairman Powell’s reassuring statements about “transitory” inflation and the Fed’s decision to slow balance sheet reduction triggered a significant market rally, despite downward revisions to 2025 growth and earnings forecasts. The current economic landscape is heavily influenced by political policy changes, creating heightened uncertainty and potential volatility for investors. While a lower 10-year Treasury yield is a potential silver lining, gold’s recent surge to all-time highs raises questions about its relative valuation compared to other assets and its historical correlation with U.S. debt growth.
Next Post: 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. »

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  • May 30, 2025 – Amidst a volatile market, significant economic risks such as high interest rates and trade policy are creating a tense environment where stock market gains may be capped. Key sectors, like housing, are already showing signs of strain from elevated rates, while the bond market remains turbulent. Therefore, a diversified and defensive investment strategy is recommended, emphasizing fundamental analysis and valuation discipline for stocks while holding high-quality bonds to navigate the expected volatility.
  • May 27, 2025 – The House has passed Trump’s big beautiful bill and moved it on to the Senate. It’s a budget buster that offers something for all but will expand deficits meaningfully. It’s a bit of a mess that can be fixed if the Senate has the backbone to fix it. Wall Street will be watching, especially bond investors.
  • 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.

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