Market Update 02/18/25

Tariffs

On Friday, Trump signed his “reciprocal tariffs” plan on foreign nations. The plan calls for imposing levies on nations that “charge us a tax or tariff,” Trump said from the Oval Office. This means things like value-added taxes (VATs), and other trade policies that the U.S. deems unfair. The reciprocal tariffs aren’t expected to take effect for at least a month and a half, once officials have determined what tariff level is appropriate for each impacted country. (Salinas, 2025)

Fed Policy

Investors feel less confident that the Federal Reserve will resume its interest rate-cutting campaign soon. After Wednesday’s CPI reading, futures markets shifted from anticipating a cut in June to expecting a cut in September. The CPI report showed little progress toward the Fed’s goal of 2% inflation. Fed Chair Jerome Powell told the House Financial Services Committee that the
central bank had made “great progress” on inflation, “but we’re not quite there yet. So, we want to keep policy restrictive for now.” (Luhn, 2025)

Retail Sales Pull Back in January

U.S. retail sales contracted in January when that data was released by the Census Bureau on Friday. Economists surveyed by The Wall Street Journal and Dow Jones Newswires forecasted that consumers would decrease their spending by 0.2%, down from the 0.4% increase registered in December. (Lane, 2025)

This represents the largest decline in retail sales in nearly two years, likely weighed down by frigid temperatures, wildfires and motor vehicle shortages, suggesting a sharp slowdown in economic growth early in the first quarter. But the decline in retail sales reported probably does not reflect a material shift in consumer spending as it also followed four straight months of hefty increases. (Mutikani, 2025)

How We are Responding

In response to what we’ve seen over the first three weeks of the Trump administration’s efforts to instill new priorities, we’ve taken action to reduce volatility in our portfolios and protect from the potential over-reaction. We began rebalances last week that will increase our allocation to alternative asset classes and investments, increasing holdings in gold and energy, as well as adding a managed futures fund to introduce extra asset classes like currencies and commodities to our models. Correspondingly we have slightly decreased our stock holdings.

Our bond holdings are also being rebalanced as we’ve seen technical movement toward shorter maturities and we have also (for the first time in a long time) included cash with our fixed income calculations. So, you will see a slightly higher cash allocation in your portfolio as well. As a matter of fact, the changes that you are seeing in our allocations are reflective of a change in our consideration of asset classes that we haven’t changed since early 2024. We are now including the alternative asset classes/investments with the calculation of our equities, and cash with the calculation of fixed income. I know that doesn’t sound like a big deal, but it is a significant change, since we’ve had static allocations to cash and alternatives for almost two years.

In summary, our path hasn’t changed, but the road has gotten a little bumpier. For our long-term clients we are adding some extra shock absorbers to make sure that our ride is still comfortable. For our newer clients we will be
contacting you and will set up a time to review your allocation and make changes that are deemed needed.

Sources:

• https://www.investopedia.com/5-things-to-know-before-the-stock-market-opens-february-14-2025-11679907
• https://www.reuters.com/markets/us/us-retail-sales-fall-sharply-january-2025-02-14/
• https://www.schwab.com/learn/story/weekly-traders-outlook
• https://www.cnbc.com/2025/02/14/5-things-to-know-before-the-stock-market-opens-friday-february-14.html