What Happened Last Week
- Equity Consolidation: Intra-equity market volatility was calmer last week after a few weeks of sharp investor rotations out of the U.S. and into internationals.
- Federal Reserve Meeting: The Fed delivered few surprises, with policymakers appearing uncertain about the outlook— yet the absence of bad news helped stabilize sentiment.
- Muted Tariff Noise: The recent lull in tariff headlines has improved sentiment and helped the equities recover.
What We’re Watching This Week
- U.S. Data: It’s a relatively quiet week, with attention on business and consumer surveys and the Fed’s preferred inflation gauge.
- International Data: March business surveys, German consumer confidence, and European inflation data will show initial reactions to Germany’s historic actions.
- Tariffs: Any news leaks around what the April 2nd tariff announcement will look like will be heavily scrutinized by the market.
Investment Management Team Views
Equity markets rose modestly last week after a challenging month of price action exacerbated by a major investor rotation into foreign equities from domestic large-cap tech and growth stocks. One of the drivers of that positioning shift was on full display last week; the German Parliament unlocked a potential flood of fiscal spending, while Nvidia’s major AI developers conference failed to excite investors. The Fed meeting showed that a building full of PhD economists is just as uncertain about the economic outlook as the rest of us; however, the lack of bad news on Wednesday buoyed investor sentiment. Last week’s relatively small moves tell us that positioning is much cleaner now than at the beginning of the year when “U.S. exceptionalism” was the dominant theme among investors.
Beyond the likely technical price action at the end of a quarter, investors are laser-focused on the reciprocal tariff date, April 2nd, which President Trump named “Liberation Day.” The back-and-tariff headlines have died down recently, helping market sentiment recover. But Trump’s focus on April 2nd raises the risk of major policy announcements, and investor expectations for what this is likely to mean in practice are mixed at best. In our view, a comprehensive plan that makes sense to investors and business leaders would lower the temperature and improve sentiment. If April 2nd just resets the starting place for negotiations, it may fuel additional pessimism and risk a slowdown in economic activity.
U.S. economic data will be relatively light this week with updates to purchasing manager surveys, consumer confidence, the Fed’s preferred inflation gauge, jobless claims, and a final look at last quarter’s GDP figure. We will also get updates on European business surveys for March, consumer confidence, and inflation data. These will be important in assessing how much of the recent positive market momentum is showing up in the data. Ahead of the end of the quarter and the April 2nd tariff deadline, investor repositioning may include some selling of international stocks due to fears of massive tariffs.
