March 2025 Newsletter

MARCH 2025 NEWSLETTER

We wanted to share with you a nice explanation of the current economy from LPL’s Chief Equity Strategist & Chief Financial Officer Jeffrey Buchbinder. It is unbiased, objective, and positive. As always, try to limit your intake of the fear mongering media. I can’t stress enough that I am not concerned in the least with any short-term fluctuations. If you ever have any questions or concerns, please don’t hesitate to call the office.

As spring approaches and the weather warms, the U.S. economy has begun to cool. After recovering from the pandemic, followed by a period of surprisingly solid and steady growth on the back of resilient consumer spending, the economy finally seems poised to downshift and trend near 2% growth. But consumers remain in good shape financially overall — particularly upper-income folks who drive most of the spending. In fact, the top 10% of income earners are now responsible for about half of all spending. Slower growth may be good for stocks because it helps ease some of the inflation pressure and can pave the way for more Federal Reserve rate cuts. We’re talking about a slight cool down, not a collapse! Re-accelerating inflation is probably a bigger risk than recession, even after weak economic data last month. We’ll take our chances with a gradual slowdown from last year’s unsustainable pace near 3% growth. Slower growth and easing inflation pressure will keep Fed rate cuts in play and prevent big up moves in interest rates that could weigh on stock and bond returns. With bond yields down this year but still attractive, 2025 is shaping up to be a good year for fixed income investors. Although stocks are off to a slow start on tariff concerns, cooling inflation and stable yields are key ingredients for the bull case. Another key ingredient for the bull case for stocks is strong earnings. Corporate America delivered in the fourth quarter, as S&P 500 companies grew earnings per share by over 18% year over year. Although strategists’ expectations for double-digit earnings growth in 2025 may be too high, especially if tariffs stick and prompt more retaliation, the earnings outlook is good enough to support stock gains. As some doubt the staying power of the artificial intelligence-fueled rally in the big tech stocks, others are finding opportunities rotating to other areas — the normal evolution of a maturing bull market. Tariffs remain a near-term threat. Although exceptions, reductions, delays, or complete reversals may come, some tariffs will stick. Retaliation by trading partners will likely weigh on U.S. economic growth. Prices on some items will rise, as foreign producers and currency adjustments can only absorb so much, making the Fed’s job tougher. Expect some impact on importers’ profits in certain industries, such as autos, food and beverages, and certain segments of retail. But don’t expect tariffs to derail corporate America’s AI-driven earnings gains. Expect a positive year for stocks on the back of steady growth in corporate profits, but likely with more bumps along the way as the economy slows and policy uncertainty remains elevated.

On a personal note, Lexi has made her college decision. She is going to Fairfield University in the fall. It was her top choice from the very beginning of the college process. She will be majoring in Marketing and minoring in business management. She is so excited, and we are so proud of her. Plus, it’s close enough for Dad to drive to when he misses his baby girl. Nicky and his team got a first-round bye in the playoffs and are in the quarter finals this weekend at home. They have a great chance of winning the league and getting an NCAA bid in the tournament. It will be tougher than expected as we lost 3 top players, out for the season, with injuries. Hopefully, they can dig deep and rally for the playoffs.

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.