The Week in Review: March 10, 2025
Tariffs On, Tariffs Off, Tariffs Back On (Sort of)
“The new Administration is implementing significant policy changes in four distinct areas: trade, immigration, fiscal policy, and regulation. It is the net effect of these policy changes that will matter for the economy and the path of monetary policy,” Fed Chief Jay Powell said in prepared remarks Friday afternoon.
Powell's comment contains plenty to unpack, but we want to concentrate on what is sparking the market's volatility, and Powell touched on a couple of points.
President Trump’s one-month delay of levying a 25% tariff on goods imported from Mexico and Canada expired last week. Trump briefly restored the tariffs, then postponed them for an additional month for items included in the USMCA between the U.S., Mexico, and Canada.
The USMCA replaced NAFTA, a trade agreement in effect between 1994 and 2020.
Investors are fretting over tariffs amid worries that they will raise prices at a time when inflation remains elevated. And there are concerns that nations subject to tariffs will raise barriers of their own, which could hinder U.S. economic growth and exports.
Additionally, economic uncertainty arising from policy changes may discourage some businesses from expanding or retooling until the situation stabilizes. In other words, investors view the tariffs as economically disruptive, leading to market volatility.
According to U.S. Census data, the two biggest U.S. trade partners are Mexico and Canada.
Clouds on the horizon
“Could we be seeing that this economy… (is) starting to roll a bit? Sure. And look, there’s going to be a natural adjustment as we move away from public spending to private spending,” Treasury Secretary Scott Bessent said Friday on CNBC.
“The market and the economy have just become hooked. We’ve become addicted to this government spending, and there’s going to be a detox period,” he added.
Investors perceive events through a narrow lens: Will they gain or lose? Will it help or hurt stocks? That is how we frame the conversation.
Budget cuts, federal layoffs, and layoffs of private government contractors, coupled with economic uncertainty regarding tariffs, could put the brakes on the economy over the shorter term, as Bessent conceded.
That is what the market is responding to (a discussion of government spending/waste falls outside the scope of this analysis).
More common than you think
We recognize that pullbacks occur from time to time. The S&P 500 Index averages a pullback of at least 10% about 1.1 times per year. We haven’t undergone a 10% peak-to-trough decline since late 2023.
Average S&P 500 Pullbacks, Corrections, Bear Markets
Analysis based on the daily closing price of the S&P 500 (excluding dividends) from 01/03/1928 to 01/22/2025.
Disclosures: Past performance is no guarantee of future results. All indexes are unmanaged and can’t be invested in directly.
Since the S&P 500’s peak on February 19, the index has been down 6.6%, with the most recent bottom on March 6 (MarketWatch data). So far, the magnitude of the pullback is far from unusual.
In the past, pullbacks and corrections have been driven by recession fears, higher inflation, trade issues in 2018, the fiscal cliff in 2012, overseas challenges such as the European debt crisis, and more.
In other words, corrections don’t happen on their own. They need a catalyst. While stocks are modestly off their highs, the consensus that the economy won’t slip into a recession has helped cushion the downside.
As with prior pullbacks, we can’t pinpoint the bottom. The lucky few that may call it will find that consistently predicting market tops and bottoms will be out of reach. Simply put, no one knows the future.
What we do know is that broad market indexes have a longer-term upward trend, and market declines eventually run their course. Historically, the patient investor has been rewarded.
Market Summary
TWO FOR THE ROAD
Existing home sales fell last year to the lowest level since 1995, when the US population was 23% smaller. - Morning Brew, Jan 25, 2025
A Welsh man who accidentally threw away a hard drive containing 8,000 Bitcoin has been fighting with authorities, trying to allow him to search the landfill where he believes it has been laid to rest. After years of battling with the court system, he’s decided that instead of paying more attorney fees that go nowhere, he’s going to simply buy the landfill. With today’s value of Bitcoin, finding the hard drive would be like discovering a fleet of Lamborghinis in the dump, valued at roughly $800 million at the time of this writing. - CNN World, Feb 14, 2025
Please do not hesitate to contact me with any questions or concerns.
I hope you have a great week!
Bill Stordahl, CFP®
Managing Director
Stordahl Capital Management
Stordahl Capital Management, Inc is a Registered Investment Adviser. This commentary is solely for informational purposes and reflects the personal opinions, viewpoints, and analyses of Stordahl Capital Management, Inc. and should not be regarded as a description of advisory services or performance returns of any SCM Clients. The views reflected in the commentary are subject to change at any time without notice. Nothing in this piece constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Advisory services are only offered to clients or prospective clients where Stordahl Capital Management and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Stordahl Capital Management unless a client service agreement is in place. Stordahl Capital Management, Inc provides links for your convenience to websites produced by other providers or industry-related material. Accessing websites through links directs you away from our website. Stordahl Capital Management is not responsible for errors or omissions in the material on third-party websites and does not necessarily approve of or endorse the information provided. Users who gain access to third-party websites may be subject to the copyright and other restrictions on use imposed by those providers and assume responsibility and risk from the use of those websites. Please note that trading instructions through email, fax, or voicemail will not be taken. Your identity and timely retrieval of instructions cannot be guaranteed. Stordahl Capital Management, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.
1. The Dow Jones Industrials Average is an unmanaged index of 30 major companies which cannot be invested into directly. Past performance does not guarantee future results.
2. The NASDAQ Composite is an unmanaged index of companies which cannot be invested into directly. Past performance does not guarantee future results.
3. The S&P 500 Index is an unmanaged index of 500 larger companies which cannot be invested into directly. Past performance does not guarantee future results.
4. The Global Dow is an unmanaged index composed of stocks of 150 top companies. It cannot be invested into directly. Past performance does not guarantee future results.
5. CME Group front-month contract; Prices can and do vary; past performance does not guarantee future results.
6. CME Group continuous contract; Prices can and do vary; past performance does not guarantee future results.