By Rick Schwerd | March 7, 2025
Our investment team remains committed to sharing updates and market insights to keep you informed. Please look for our next update on March 21.
February Labor Market Report
This morning’s jobs report was largely in-line with expectations. The economy added 151,000 jobs during February and the unemployment rate increased one-tenth-of-a-percentage point to 4.1 percent. The unemployment rate has remained between 4.0 and 4.2 percent since last August. The effects of the Trump administration’s efforts to reduce federal employment will likely not begin to appear until next month.
Tariffs Continue to Disturb Markets
This week’s announcement of 25-percent tariffs on most imports from Canada and Mexico and an additional 10 percent on Chinese goods further weighed on U.S. equity markets. The S&P 500 currently sits at 5,730, down 6 percent from the all-time highs it reached in mid-February and off 2.5 percent year-to-date. The tech-heavy NASDAQ has fared worse, down more than 6 percent this year and 10 percent lower than its mid-December all-time high. The more value-oriented Dow Jones Industrial Average has held up a bit better. Although it was down more than 4 percent over the last month, it is flat for the year.
The questions regarding tariffs - how long will they be in place, what they will be for the rest of the world, are there more to come, etc. - are weighing on markets. Uncertainty can be detrimental for equity markets, and we have an overabundance of it at this time. Markets rallied on Wednesday as it was announced that automobile tariffs would not go into effect this month, only to sell-off again on Thursday.
It was later announced that goods covered under the USMCA trade deal signed during President Trump’s first term would be delayed until April. This would exclude 50 percent of imports from Mexico and 38 percent from Canada. However, a significant portion of the imports from Canada are energy related, which are subject to 10 percent tariffs.
Trump administration officials continue to stress that the goal is to bring back manufacturing to the U.S. However, global supply chains have been developed over decades and in many cases cannot be changed on a dime. In the short-term, tariffs and subsequent reprisals are likely to increase prices and inflame relations with trading partners. Many of the administration’s policies, such as tax and deregulation should increase the earnings and productivity of U.S. corporations. However, it remains to be seen how much market disruption and loss of political capital the administration is willing to suffer on the tariff front.
International Markets Rally
Surprisingly, some of the early winners so far this year have been international markets. The Chinese Heng Seng Index is up more than 20 percent this year on the back of fiscal stimulus and Artificial Intelligence (AI) breakthroughs. The German Dax Index is nearly 18 percent higher and the Euro Stoxx 50 Index, comprising of 50 of the largest European companies is up 13 percent.
Part of the out-performance of European markets is due to a simple rotation out of growth companies and into value. European indexes are dominated by traditional value stocks such as financials, manufacturing and healthcare. U.S. indexes are much more growth-oriented as demonstrated by the Mag Seven stocks. Another factor is that European leaders have been very spooked by the current administration’s stance on Ukraine, which has led them to propose large increases in defense spending.
Since the start of the pandemic, the U.S. has significantly increased fiscal spending, which has driven up the national debt and put upward pressure on inflation and interest rates, but also helped buoy equity prices. European companies initially supplied fiscal stimulus at the beginning of the pandemic, but have practiced much more fiscal austerity in subsequent years. For the time being, it appears the roles have reversed, which has contributed the divergence of market outcomes.
Over the long term, we continue to prefer U.S. equities over international. The U.S. is home to the vast majority of stable high-growth companies that should outperform over time. The U.S. also has a much better demographic outlook than countries like China, Japan, South Korea, and much of Europe, which are aging rapidly. However, there will be periods like the present, where international stocks are going to outperform U.S. stocks. This is ultimately why diversification continues to be so important.
As always, if you have any questions or concerns regarding markets or your financial planning needs, please reach out to us at (518) 415-4401.
About the Author: With almost three decades of financial industry experience, Rick serves as a Senior Investment Officer at Arrow Bank, formerly named Saratoga National Bank. He oversees individual and corporate retirement plans, personal trusts, investment management accounts, foundations and not-for-profit relationships.