Today’s date is Wednesday, March 5th. It's easy to say that 2025’s geopolitical changes have brought a level of uncertainty to the major indices. The S&P 500 is now down 5% on the month. The Dow Jones Industrial has shed 4.2%, and the Nasdaq slipped 6.8%. The bond market has pressured stocks, as the 10-year has dropped 64 basis points, signaling a slight transition from high-valuation equity prices to safer yields. Volatility has spiked significantly reflected by the VIX surging 40% on the month. Threats of re-inflation, layoffs, and shifting trade policies, have all been basketed together topped with a bow tie for investors' doorsteps.
This week, President Trump imposed 25% tariffs on imports from Canada and Mexico, alongside a 10% tariff on Chinese goods. These measures aim to directly address his concerns over the United States trade deficit; However, the change in trade policies has raised concerns about the foreseen economic implications. S&P Global’s Chief Economist, Paul Gruenwald, went on Bloomberg stating his predictions for 2025 “We predict GDP down 3% in Mexico and 2% in Canada… something less like .25% in the U.S and China.” These implications could have recessionary implications for Canada and Mexico, as well as smaller spillovers into our domestic markets. The Federal Reserve Bank of Boston estimates “these tariffs could add a minimum of 0.5 percentage points to PCE inflation depending on how businesses adjust their profit margins.” It's impossible to fully predict where inflation will be by Q4; however, if businesses decline to receive the burden to their gross profit, it's possible that .5% could undershoot the true inflationary pressures these tariffs will have on consumers’ shelves.
Austerity has impacted government jobs notably amongst those under DOGE’s authority. Since January, 30,000 federal positions have been eliminated in numerous departments. Sweeping permanent layoffs are part of the new administration's broader strategy to streamline government operations, cut costs, and reallocate resources. While proponents argue these measures are necessary for fiscal responsibility, A Reuters/Ipsos poll indicates 59% of respondents in the poll backed the goal of downsizing the federal government, including about a third of self-identified Democrats; however, only 42% now support the recent actions taken by DOGE for achieving this goal. Unemployment has been a looming concern from financial experts, as a notable shift could cause the Fed to take swift action.
This week was the announcement of the U.S. Strategic Crypto Reserve. Markets immediately bought the news, surging bitcoin up 12%, followed by a return to pre-announcement levels shortly after. The Strategic Reserve will include other notable cryptocurrencies like Solana, Cardano, and XRP. There are still many questions to be asked; however, more guidance should come when recommendations are due in mid-July. The administration has not set a firm deadline for full implementation, but it's safe to say the implementation could be extremely bullish on a long term horizon on crypto markets.
Jonah’s Thoughts: The majority of the bearish Q1 news has been priced in by markets. This is important as it creates upward support levels for securities. Technicals have remained quite intact, meaning the recent sell-offs are not based on current market performance, but more so on the attestation that data could weaken in the future. The U.S’s macro health is in a great place given we just completed two years of high rates. Coming off back-to-back years where the S&P has returned 20% or more, there is a shared sentiment by many that growth will slow down. It would be ignorant to say it’s not probable given the longer hold on interest rates; however, don't confuse the meaning with non worthwhile returns. With the expectation of two or less rate cuts this year, equities will have a longer runway for growth. I am personally targeting a 6500-6700 S&P and a $150,000 Bitcoin by year end. The major threats to these price targets surround future geopolitical uncertainty. Based on these targets, I believe there is a really solid chance of seeing worthwhile returns, so having market exposure to equities and crypto should prove to be an advantageous position.
