Investors have seen plenty of problems recently, as the S&P 500 has fallen over 6% in March as of this writing, its worst month since the cyclical bear market of 2022. The reasons for the decline are simple - tariffs and policy uncertainty. Tariffs can raise costs for businesses and prices for customers, squeezing profit margins and straining consumer finances. Economic policy uncertainty causes companies and consumers to delay making hiring/investing/consumption decisions that drive the economy, and reduces valuation multiples for stocks. According to research from Evercore, economic policy uncertainty is at its highest levels ever excluding COVID – higher than the aftermath of 9/11, the Great Financial Crisis, or the US Debt downgrade. That has driven investor sentiment to levels of pessimism only seen near the bottom of bear markets in 1990, 2009, and 2022.
But even with the problems above, there is opportunity in the market too. Investors own shares of companies, they are not invested in policy certainty or other macroeconomic data. Companies that sell products like financial data, health insurance, cybersecurity software, or cardiovascular devices (to name a handful of industries) should see minimal effects to their business from tariffs. Some companies, such as auto parts retailers, can see a boost to their business from tariffs as higher car prices lead to people driving their current cars for longer, necessitating more repairs. Such companies are well represented across client accounts.
The weight of the evidence continues to suggest that this decline is a correction in an ongoing bull market, not the start of a major decline that takes years to recover. Credit spreads are still signaling high levels of economic confidence in the credit market. The financial and industrials sectors, both of which are very exposed to the health of the economy, have performed better than the broader stock markets. Volatility traders are expecting near term volatility to decline, a rare condition that has often been associated with market bottoms.
At the beginning of the year, we wrote that the evidence suggested 2025 would be a choppy year with “3 steps forward, 2 steps back”. The last 6 weeks have seen the market take a few steps back, and the market needs more clarity from Washington before it can rally sustainably. There is the potential for more declines into April. But such volatility is the emotional price investors pay for higher returns in the long term. Our indicators suggest that the proverbial “3 steps forward” lie ahead. In the meantime, most client accounts have some funds in cash or ultra-short term bonds that can be used to buy stocks at attractive prices. We will continue to monitor our objective indicators and adjust accounts accordingly.
This is being provided solely for informational and illustrative purposes, is not an offer to sell or a solicitation of an offer to buy any securities. The information provided here is taken from sources that we believe to be reliable but is not guaranteed as to accuracy or completeness. Opinions expressed are subject to change without notice and do not consider the particular investment objectives, financial situation or needs of individual investors. Past performance is not indicative of future results, and future returns are not guaranteed. There are risks associated with investing, such as a loss of original capital or a decrease in the value of your investment. Employees of Janney Montgomery Scott LLC or its affiliates may, at times, release written or oral commentary, technical analysis or trading strategies that differ from the opinions expressed here.
