Editor’s Note: As Matt Benjamin explains below, Members of The Oxford Communiqué Pro receive a detailed summary of market events each month.
Matt pores through all the economic data, policy changes, and earnings reports that he and Chief Investment Strategist Alexander Green are monitoring.
You’ll discover a summary of their discussion about the outlook for markets and the economy, in The Oxford Communiqué Pro.
The outlook for March comes out tomorrow! Click here to see the details.
– Nicole Labra, Senior Managing Editor
They say March comes in like a lion and goes out like a lamb.
I’m not sure about the current weather forecast, but for financial markets, that sounds exactly right – with the part about the lamb still merely hopeful at the moment.
Several factors have combined to push the market’s worry barometer – also known as the Chicago Board Options Exchange Volatility Index (VIX) – dramatically higher in recent days.
This indicates that investors are extremely uncertain about the future direction of markets.
And CNN’s Fear and Greed Index of investor sentiment dipped to 22 in recent days, putting it in the “Extreme Fear” region. Just a week ago, it was at 47 – solidly in the Neutral zone.
So what’s going on? Several things, really.
A Potential Trade War
First, I would point to the tariffs that the Trump administration is about to implement on the U.S.’s biggest trading partners.
The White House has already slapped an additional 10% tariff on goods from China; a 25% tariff on imports from Mexico and Canada will take effect on March 4; and a 25% tariff on all steel and aluminum imports will start in mid-March. Plus, Trump is now pondering 25% tariffs on imports of automobiles, drugs, and semiconductors.
Tariffs can both cause inflation and ignite a trade war between otherwise allied nations. Both would be very bad for stocks.
Softer Data
In addition, several recent economic reports suggest the economy may be slowing. They include a falloff in retail sales in January and a dramatic drop in consumer confidence about the economy, as measured by the Consumer Confidence Index.
Both indicators seemed to play out in Walmart’s (NYSE: WMT) disappointing forward guidance last week, which sent the share price of the nation’s largest retailer down 9% in two days.
Of course, keep in mind that a few poor economic data reports could merely be aberrations, or “noise,” as analysts put it. But if mediocre or poor data continue to pile up this month, fears of a slowdown or even recession will grow and could push asset prices lower.
Housing Slump
And the housing market, which accounts for some 20% of the economy when you include all the other industries that depend on it, continues to stagger.
Sales of previously owned homes fell 4.9% in January – which was more than expected – due to elevated mortgage rates and home prices, which together put a home purchase out of reach for many would-be buyers. If rates remain where they are – near 7% – the industry will continue to struggle and slow economic growth.
Stretched Valuations
Finally, keep in mind that U.S. stocks are extremely expensive right now, both by historical standards and compared with stocks of other countries.
The S&P 500 forward price-to-earnings (P/E) ratio now stands at about 22 and is closing in on the level it hit right before the dot-com bubble burst. By contrast, international stocks have a forward P/E of less than 14 at the moment.
When stocks are this expensive, a lot of things must go right (and very few things poorly) to keep the rally going.
(Each month, I go through all the economic data, policy changes, and earnings reports that Chief Investment Strategist Alexander Green and I are monitoring, and provide a summary of our recent discussion about the outlook for markets and the economy, in The Oxford Communique Pro. The outlook for March comes out tomorrow. Get access here.)
It’s very possible that the current bull market, now almost 2 1/2 years old, will continue through 2025, and March will go out like a lamb.
But much remains uncertain. Savvy investors will want their money invested in a diverse mix of high-quality stocks, both U.S. and international.
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