Uncertainty Grows
It seems like much more than a month since the inauguration of the new administration. More Executive Orders have been issued in this short time span than in any other Presidency. How are we to keep up?
I attended a conference last week at which there was much discussion around the many possible implications for our work – the management of portfolios and, most important, the steering of our strategies toward our shared goals of our clients’ long term financial health. Regrettably, there was no clear vision of the best plan to navigate the enormous uncertainty for financial markets.
Focus
As we do in most chaotic seasons, we focus on those published bits of data just as the Federal Reserve does – the health of the labor market and therefore the health of the consumer, and interest rates which reflect the current inflation trend. These current and projected information points give us a general framework on which to model our investment allocations for both near term and long-term positioning.
Today’s Jobs Report hints at a still healthy but slowing labor market. Unemployment remains historically very low. Employers are not firing but they are also not hiring very much but we know that as long as consumers are employed, they will spend. All very good for our equity markets. But where is that spending going? It appears less on Goods; it is going to Services. And it is the higher income consumers who are doing most of the spending.
Tariffs
The uncertainty around tariffs is likely a contributor to employers’ reluctance to hire. We believe this uncertainty will ripple through many sectors of the economy as the different countries and produced items are targeted or the tariffs are delayed in implementation.
Tariffs, by almost unanimous agreement, are inflationary. Uncertainty around tariff policy filters through to uncertainty around economic growth. When we couple that with uncertainty around the labor market, we find ourselves agreeing with Federal Reserve – No Change for now, but readying our teams for the possibility of negative pressures.
Moderation
We believe both equity and bond markets will see a moderation in this quarter but will still hold on to positive valuations. For investors who are perhaps younger, more accepting of risk, we would consider an allocation to what AI needs in abundance – energy. For those investors reading this and not yet a client of Erickson, we suggest you contact Lauren Erickson for assistance in navigating what could be turbulent waters ahead.
For a deeper dive into what the Economic Outlook is for the Spring Quarter, be sure to mark your calendars for our Market Outlook presentation on April 11, 2025 at Noon. See you there.
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The views stated in this letter are not necessarily the opinion of Cetera Advisor Networks LLC and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change with or without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results. Investors cannot invest directly in indexes. The performance of any index is not indicative of the performance of any investment and does not take into account the effects of inflation and the fees and expenses associated with investing.
All investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy will be successful.
