Resources/Weekly Insights

Volume 14, Edition 8 | March 9 - March 15, 2025

Advice For Moments Like These

Doug Walters, CFA

The recent market correction sent the media into high gear stoking fears amongst investors. In such times there is opportunity for those who can prioritize evidence over emotion.

Contributed by Doug Walters, David Lemire, Max Berkovich, Matthew Johnson

Stocks ended the week in the red for the fourth week in a row and for the sixth time in seven weeks. The S&P 500 officially dipped into “correction” territory. The Magnificent 7 have become the mediocre 7 (and that’s generous). Tariffs are high, and consumer sentiment is low… and you should forget I everything I just said.

Investors who get caught up in the emotional maelstrom of yet another “correction” are always at above average risk of doing damage to their long-term portfolio returns. It’s science. It’s human nature. But you need not fall into that trap.

A correction is an arbitrary term for when a market is down 10% or more from a previous peak. They are not rare events in US equities. While they were notably absent from 2024, we had one in 2023, several in 2022, and a quite memorable one in 2020. Over the past five years we’ve averaged around one per year. Over that same time period, the US stock market (including the pandemic) returned to shareholders over 17% per year.

So, despite the emotions that surround them, corrections are a normal part of functioning markets. In fact, corrections can be an opportunity.

Generally, markets are rational – but not entirely. Therein lies the opportunity. Despite our warnings there will be those that act on emotion and not logic. At times that can lead to overreactions (both on the upside and the downside). Evidence-based investors wait patiently for those opportunities. We know not to sell when the market sells off. It is not that we can see the future. Far from it. Rather, we know that as the market falls it is becoming increasingly cheap and we’d prefer to be buyers than sellers.

As we go through turbulent days in the market, whether now or years from now, we remind investors to focus on the opportunity not the emotion. It is simple advice, but we recognize it is not always easy to follow. We can help.

57.9

Consumer Sentiment

The University’s measure of consumer sentiment index came it at 57.9, well below the 64 expected by analysts. What are the implications? A colleague of mine once noted, “the only thing the consumer sentiment index is good at predicting is consumer sentiment.”

2.8 %

CPI Inflation

Inflation came in a little lower than expected, but the Fed will have its eye on the impact of tariffs if they stay put. The University of Michigan inflation expectations reading came in at 4.9%.

Headline of the Week

Uncertainty Hits Us

As we said a few weeks ago, uncertainty can give markets fits. Uncertainty can also wreak havoc on us too. University of Michigan consumer sentiment survey took a hit as uncertainty around tariffs, DOGE effects, stock market direction and immigration combined to take a toll. Even the dreaded “R” word (recession) has crept back into the narrative. While many economists are reducing growth estimates, few are explicitly forecasting a GDP contraction. That said, in an economy that is largely consumer driven, any dent to sentiment can turn into a self-fulfilling reality with wide ranging implications.

One positive note heading into the weekend is that it looks like the government will not shut down. This progress coupled with a benign inflation report earlier this week helped markets rally to close the week. Whether these positive developments help the market regain its footing depends heavily on resolving some of this uncertainty.

The Week Ahead

The Federal Reserve has a rate decision next week but is not the only major central bank to do so. The Bank of England and Bank of Japan are also up to bat.

Steady but ready?

The 4.25% to 4.5% rate rage is expected to stay untouched next week; however, the Federal Reserve (Fed) is supposed to announce its rate projections going forward.

The so called “dot plots” are needed to adjust market expectations of how many rate cuts are expected, even if “when” will still be in the air.
The Fed will also make some economic projections, which are expected to be heavily hedged with uncertainty from fiscal policy.
Markets are split going into this meeting with 2 or 3 rate cuts in 2025 and pegging summertime for the first cut.
Some excitement about a cut this meeting was provoked when inflation data came in better than expected. But the Fed’s fear is the inflation that is yet to come when the import tariffs take effect.

Around the World

The Bank of England (BoE) and Bank of Japan (BoJ) are expected to keep rates where they are as well.

The market anticipates two cuts from the BoE this year, with no cuts in the spring.
The BoJ will also hold tight, with no hike expected until May at the earliest.
The BoJ, unlike the rest of the banks, is looking to move rates up not down, as they just recently ended the zero-rate regime.
Sweden’s Riksbank is also expected to hold tight, despite being among the most aggressive developed world central banks at cutting rates.
The Swiss National Bank may be the only G-10 central bank to cut this week, bringing them close to zero rates.
For those having a tough time keeping up… the last three – Japan, Sweden and Switzerland – have the lowest rates of the 10 major developed markets, with Japan trying to move rates higher and Switzerland moving closer to zero.
The US, United Kingdom, and Norway have the highest rates at over 4.25%.

Happy St. Patrick’s Day!

May you find lots of gold at the end of the rainbow!

At close to $3,000 an ounce that would be a great pay day.
If the rainbow fails to deliver, have a look in your portfolio.

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