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