From an optimistic perspective, the U.S. is less sensitive to lost trade than many of our trade partners, including Canada, Germany, Mexico, Japan, the UK and China. A tariff war would hurt these countries more than it would hurt the U.S. – but it would still harm the U.S. economy. An egalitarian scenario where all players drop their tariffs at once would be ideal, but is also idealistic and not very likely.
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Mar 27, 2025
Spring Market Outlook: Intermittent storms, proceed with caution
With both speculation and valuation hitting a fever pitch, a goals-oriented and data-driven approach to portfolio management is a better strategy than ever.
Editor’s Update as of April 10, 2025: While the news and the markets appear to have gotten on a supercharged rollercoaster as they reacted to the April 2nd tariff policy announcements from the Trump administration our spring discussion remains relevant. That’s because CWM’s strategies for management are built to weather circumstances like these.
What does that mean? Primarily, it means that we don’t make reactionary decisions based on speculation and short-term news. Our strategy is to adjust when market data suggests its time, based on concrete information and metrics. This approach leaves no room for reactive or emotional decision-making.
At our Market Outlook on March 25th, we welcomed Chris Bush, CFA®, vice president of research at longtime partner First Trust Portfolios, as a guest contributor. While none of us has a crystal ball to see a rosy future, we’re not panicking – or making drastic changes. Read on for a recap of this discussion.
Key economic factors
Looking at the market environment as a whole, we consider a few key factors to make an assessment:
- Economic data is currently in the positive-to-neutral range. Manufacturing and service data are both in expansion territory and in uptrend. Government deficit spending remains high, which doesn’t bode well for the national deficit, but is generally a stock market positive.
- Market momentum is mostly positive. While it’s slowed down in the short term, long-term momentum is pointed in a positive direction.
- Interest rates are in negative-to-neutral territory. We currently have higher interest rates than a few years ago, which makes buying a house or car more difficult by contrast. Those sharply higher interest rates may have a greater impact as they work through the economy over time.
- Investor behavior is generally neutral – an improvement from the high levels set back in December. It remains above average, but is not making a major impact yet.
- Valuations are on the negative end of the spectrum. They remain at outlier, nearly all-time high levels despite some recent market corrective activity.
Government policy
The major source of current market anxiety is the Trump administration’s rhetoric and actions around tariffs and international economic policy. Congress and the president are also trying to push through an extension of the 2017 Tax Cuts and Jobs Act (TCJA), which has future implications for the deficit.
The First Trust perspective: Equity market dominance and divergence
In the past months, we’ve seen the market react positively to Trump’s election, and then have an extremely negative reaction to rhetoric around inflation and tariffs. If you’re making decisions based on hype or fear, you risk losing more than you gain – and putting yourself under immense stress in the process. That’s why it’s more productive to discount politics and narratives and focus on the data.
Like CWM, First Trust analysts look at concrete data from key factors to evaluate the health of the markets overall – which are currently a mixed bag:
- Sentiment is currently the primary driver of market fluctuations. Investor sentiment has gone from very high to very low. As of this writing, less than 20% of regular investors feel good about things. Sentiment can change overnight and is often unpredictable.
- Interest rates are dropping a bit but are still higher than the outlier lows surrounding the pandemic. Dipping interest rates are generally good news for markets – but with consumer costs still high, we’re seeing limited movement based on those lower rates.
- Fundamentals, or company earnings, are still solid, wrapping at above average levels by the end of 2024. When companies make more, they’re worth more, and companies are generally doing well across the country, despite speculation and upheaval.
What’s next?
While it’s easy to fall into the trap of thinking the sky is falling, the best step you can take for your financial health is to stop, watch, and analyze before making major decisions. Not every segment of the market reacts at the same time or in the same way, and making decisions based on speculation poses a risk to long-term goals. Recent announcements and negative sentiment could have a major impact on some sectors but have less impact on others. Opportunities and risk change all the time, and this is our most recent and glaring reminder of that fact.
As the news keeps coming and speculation rages, the best thing you can do is stop, take a breath, and re-focus on your goals. From there, ask what actions you need to take to keep moving toward those goals. We created our range of investment models to enable our clients to make mindful choices about risk vs. potential upsides, based on their life stage and lifestyle goals. To have a dedicated conversation about what current events mean for your individual portfolio, please schedule time to connect with your advisor or call the office directly at (425) 778-6160. Not a CWM client and would like a second opinion on your current financial situation? Schedule a complimentary 30-minute conversation with a CWM advisor.
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