Weekly Investment Perspective

Investor confidence was shaken last week while they contemplate the effects of multiple actions taken by the Trump administration. After a contentious meeting at the White House with President Zalinski on a trade agreement for rare earth minerals, President Trump paused all aid to Ukraine increasing global tensions. Tariffs were implemented or raised on March 4th to Mexico, Canada, and China as President Trump felt they are not doing enough to curb illegal immigration and drug trafficking. In response, those three countries enacted counter tariffs and raised the possibility of completely cutting off some of products, such as electricity, the U.S. imports and relies upon. Then, just two days later the tariffs for Mexico and Canada got a second delay and are now set to be implemented on April 2nd.

Investments outside the U.S. were the bright spot last week with the MSCI AC World ex USA gaining 2.62% for the week. Domestic stock markets were down with the S&P 500 and Dow Jones showing a loss of -3.06% and -2.33%, respectively. Small and mid-sized companies took a harder hit dropping -3.44% and -4.01%, respectively.

Initial jobless claims fell for the week ended March 1 and continue to point to a labor market with limited private sector layoffs but also few open job prospects for those who are unemployed as shown by elevated continuing claims. While the private sector initial claims were down slightly, Federal workers, who file unemployment claims under a separate benefits program, are starting to see layoff claims inflect higher from government spending cuts. The US economy added 151,000 jobs in February, and the unemployment rate moved up to 4.1% from 4% the month before. Keep in mind most of the job cuts for federal employees have occurred after this reporting period and will be reflected in future employment reporting periods, although the likely impact on aggregate employment data is expected to be modest.

Current and new tariffs are continuing to prompt individuals and companies to increase purchases ahead of full implementation. January trade deficit gained 5.5% (excluding gold), after a 3.5% gain in November and December. As tariffs are implemented, the upward pressure on inflation will give the Federal Reserve another reason to leave interest rates alone and continue to watch how things unfold.

The Federal Reserve beige book for February 2025 came out showing consumer spending was slightly lower and more focused on essentials than discretionary items. Manufacturing saw a small increase in most districts. Severe weather may have reduced demand for leisure and hospitality services. Construction activity declined for both residential and nonresidential units. Prices went up in most districts and several noted prices increased at a faster pace than in previous periods.

This week, we see inflation information come out in the CPI (Consumer Price Index) and PPI (Producer Price Index) reports. In addition, the JOLTS report, Job Openings Labor Turnover Survey, may give some insights on what effects the administration is having on employment.

2025 The Long View | First Merchants Bank