Market Insights Recap — Week of March 10, 2025

Hello, I'm Steve Orr, Chief Investment Officer of Texas Capital's Private Bank. Welcome to the market bounce house. Let's quickly review the taper tantrum, rate rebound and wall of worry. Short answer to all three. This is a garden variety correction for stocks, just bouncing around. Long-term interest rates are trying to find their way. And the economy has tariff and shutdown worries. 

That 13-day slide since February's last new high is being blamed on tariff worries. How long will they last? How much will they impact consumers and businesses? All good questions, since the Canada, Mexico and China levies are at least four times higher than the 2018 tariffs back in Trump 1.0. Their start date seems to change by the hour. Some take effect on March 12, others April 2nd, some a month from now. Tariffs do push some prices higher, but not as much as you're seeing in the press. 

A good portion of the change in prices happens in the foreign exchange markets, and the value of our dollar has already fallen about 6% against the euro and Japanese yen. Sorry if you're headed overseas for spring break. The uncertainty over tariffs is causing businesses to sit on their hands. That slows economic growth. If all the tariffs floated around in D.C. are turned on, we think it shaves about 3/10 of a percent off of 2025 growth. So between one and a half and 1.8%, instead of our 2% plus we were forecasting at the beginning of the year.

The economy and business in general is doing fine, according to Fed Chairman Powell. And we mostly agree. How does this impact our portfolios? Our economic readings suggest January slowdowns were weather-related. Services and manufacturing indices do remain in expansion territory, so the economy is still on track. 

We're starting to see some changes in the employment picture under the headlines. That will become more clear after federal layoffs next month. Slowdowns do not get serious until earnings growth turns negative. That's not an issue at the moment. What's certainly surprising is last week's rate rebound. Rates were trending lower over those growth scares. Europe, especially Germany, committing to spend over $800 million on defense, pushed their interest rates up by the most in a decade. Our rates followed their rates higher a bit. The fed is comfortable with rates at these levels and will not change their short-term rates at their March 19 meeting.

In summary, this is inflation week. Consumer and producer price increases are running at about 3% per year. Tariff worries and growth scare are just that for now. This is a normal correction for stocks. They will bottom in the coming weeks once selling exhaustion has hit. Doing something out of worry in your portfolio rarely works out well and cash is earning 4%. So watch and wait; 'til next time.