It’s Not All Bad

Answer: Increased volatility is, in part, the result of the administration’s tariff plans. This has also caused declines in consumer and business confidence. Yet, in spite of the uncertainty, there’s hope on the horizon and underreported positive developments that could keep economic growth on track. 

There could be a global peace dividend. Although a full settlement between Russia and Ukraine remains remote, the two sides are at least talking now. After the intense Oval Office showdown between Trump and Zelensky, Europe stepped up to support Ukrainian military needs with an $840 billion package for defense. Germany followed suit, announcing an infrastructure bill to encourage growth. It’s estimated that the cost of rebuilding Ukraine would be $500 billion, stimulating economic activity. 

Lower gas prices and tax refunds could help consumer spending. Since gas prices and consumer confidence are highly correlated, falling gas prices should contribute to stabilizing confidence and spending. Additionally, tax season is ramping up, and with refunds being issued at the fastest pace since 2020, this could provide a boost to consumer spending moving forward.

Interest rate sensitive sectors should benefit from falling interest rates. Although the Fed did not change rates at their March meeting, longer duration bond yields have come down, bringing the 30-year fixed rate mortgage rate to a five-month low, now well below 7%. This is especially good news ahead of the spring selling season. Earlier this month, according to the Mortgage Bankers Association, mortgage applications and refi’s were up  20% and 37%, respectively. This could indicate an uptick in future demand. Falling rates should help boost growth for interest rate-sensitive areas such as homebuilders and autos in the equity market.

Softer growth could put Fed rate cuts back on the table. With talk of slowed growth, market expectations are for at least two, if not three rate cuts by the end of 2025. Rate cuts could provide support for economic expansion by making the cost of borrowing less expensive. 

Tariffs are not likely to be as severe or long-lasting. The Trump administration has been more aggressive than expected with trade, implementing 25% tariffs on Canada and Mexico, 20% tariffs on China, and proposing additional tariffs set to take effect on April 2 (including 25% on the EU). 

As of 9:00 PM on March 23, 2025, according to the Wall Street Journal, “tariffs on industrial sectors are no longer expected to be announced on April 2, though major trading partners will still be hit with so-called reciprocal tariffs. 

This has weighed on business and consumer sentiment, with the US Economic Policy Uncertainty Index reaching at its highest level on record except for during COVID. It’s expected that the Trump administration will roll back some tariffs on our closest allies (e.g., Mexico and Canada), and we’ve already seen some flexibility by delaying auto tariffs on Canada and Mexico and excluding agricultural products. Ultimately, the weighted average tariff is expected to increase from 2.5% to 7.5%. More will be revealed as we watch corporate earnings.

Market awareness and sentiment. President Trump views the stock market as a key barometer of his success, but he has been remarkably quiet about it lately. While Trump mentioned we might see 'a little disturbance' from the impact of tariffs, we expect that further downward moves will prompt more favorable sentiment from the White House. Stay focused and plan accordingly. 

Source: FactSet March 6, 2025.