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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: « December 19, 2024 – The Federal Reserve lowered its key interest rate by a quarter percentage point yesterday, but signaled that only two more rate cuts may be coming in 2025 instead of the four cuts widely expected. Fed Chairman Powell said it is like “driving on a foggy night or walking into a dark room full of furniture: you slow down, you go less quickly.” That hawkish and more uncertain tone was not well received by markets. While the stock market is typically volatile on Fed decision days, the 10-year yield backed up to 4.5% and stocks dropped about 3% following the Fed’s remarks. Markets have been strongly positive this year, but a pause on this news provides a chance to focus on better valuations. Stock market futures are indicated positively this morning.
Next Post: 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. »

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  • October 30, 2025 – The current economy is defined by a deep bifurcation, where a massive, AI-driven capital expenditure boom is fueling record tech profits and a rising stock market for the affluent, even as the lower-income consumer faces a severe affordability crisis marked by rising delinquencies and credit-market stress. This “Tale of Two Consumers” creates a precarious investment landscape, as the tech rally is dependent on a potentially circular and unsustainable spending cycle, while the deteriorating financial health of the broader consumer base presents a significant headwind to the real economy.
  • October 27, 2025 – With President Trump making news overseas, and Canada facing more tariffs, Wall Street will focus on the earnings of five big major tech companies this week. In the short-term, meaning between now and year-end, the prospect of continued solid earnings and lower short-term interest rates should keep stocks moving higher. But there are always warning signs. The biggie is debt. Too much debt burst the balloon in 1929 and again in 2008, the two biggest calamities of the last century. Debt levels aren’t quite threatening yet but they are moving in the wrong direction and bear watching.
  • October 23, 2025 – This is a significant week in Back to the Future movie lore. The famous time-travel movie of 1985 highlighted a trip back 30 years and also ahead 30 years. Predictions of future technology are notoriously off the mark, but the pace of technological innovation continues to drive economic growth today. Markets may be taking a breather from new highs recently, but corporate earnings reports have been generally positive, and the near-term future is not as bleak as once thought.
  • October 16, 2025 – The current surge in AI data center spending, estimated at $400 billion for 2025, creates immense financial pressure, as the annual depreciation costs alone significantly outpace projected industry revenues. Without exponential revenue growth to justify these expenditures, the AI sector risks repeating historical capital destruction cycles seen in previous technology bubbles.
  • October 9, 2025 – Tariffs were raised this year significantly, but corporate earnings have been coming through surprisingly strong. The U.S. Government shutdown enters its second week, though overall economic growth continues. Inflation has been stuck above the Fed’s preferred level of 2% and unemployment remains relatively low, although the Federal Reserve has embarked on an interest rate easing cycle. Stock markets around the globe have reached record highs, but so has the price of gold, a typically safe-haven investment. If it feels like an episode of the Twilight Zone, you are not alone.
  • October 6, 2025 – As long as earnings growth continues and the 10-year Treasury yield stays within the recent two-year range, the bull run for stocks should continue. The government shutdown news occupies media attention but not on Wall Street, at least until there are significant economic consequences. Ultimately, the ACA subsidies will be extended in some fashion because taking money away from voters can be politically expensive, especially for the party in power. Extending the subsidies will expand deficits but higher income and capital gains taxes will be an offset, at least this year and next.
  • October 2, 2025 – The stock market hit a record high yesterday—despite the government shutdown—which is a testament to the powerful influence of AI, creating a speculative frenzy that masks a cooling labor market and two-tiered, consumer-driven economy. This dichotomy poses a significant risk, making a disciplined and diversified investment strategy essential.
  • September 29, 2025 – AI is deemed by many to be the biggest economic game changer since the invention of the airplane. Maybe so, but PCs, the Internet and the iPhone didn’t move the productivity needle in any discernable way over the past 50 years. No doubt, AI will make us smarter, and some of us more economically productive. But before labeling the next decade as the golden age of productivity, we need to see some evidence of noticeable change. Universal adaptation of AI as a core business process is likely to be expensive and more time consuming than optimists suggest. In the meantime, our economy will continue to grow the old-fashioned way at the old-fashioned pace. That’s not so bad.
  • September 25, 2025 – Fed Chairman Powell noted this week that while equity prices are “fairly highly valued,” this is not a time of elevated financial stability risks. While the U.S. accounts for the majority of the largest companies in the world, our trading partners are also dealing with tariff impacts, inflation, economic growth and interest rate policy setting. The escalators at the United Nations may be glitching, but the U.S. economy, corporate earnings and equity markets around the world have continued to trend higher with a few bumps along the way.
  • September 22, 2025 – The Fed cut rates last week as it focuses more on the deteriorating state of our labor market. The unemployment rate remains modest but only because demand and supply are eroding in tandem, hardly a favorable state of affairs. While the concentration was on labor, more aggressive fiscal and monetary policy could increase inflationary pressures. Thus while President Trump’s new appointee opted for over a one percentage point drop in the Fed Funds rate by year end, the rest of the Board voted to move at a more measured pace. Wall Street applauded that decision.

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