Stocks Strip Down for Spring: Window Dressing Turns into Window Undressing as Markets Flash Recession Fears/Try the Orzo

March 31, 2025

Things you need to know.

- And the selling continues….

- Futures are lower – it is end of quarter.

- Gold continues to surge. Tariffs only hours away.

- Goldman and other big Banks – cut the outlook.

- Lots of eco data and 5 Fed heads to address the ‘nation’ this week.

- Try the Mediterranean Orzo

***Markets are anxious, and that can make you uncomfortable….Click on the link https://slatestone.com/contact-us/ to send me a message to discuss your plan….or feel free to call me at 561-244-2504.

Stocks continue to lose ground – the end of quarter ‘Window Dressing’ has become the end of the quarter ‘Window Undressing’ – the Dow down 715 pts or 1.7%, the S&P lost 112 pts or 2%, the Nasdaq down 480 pts or 2.7%, the Russell down 42 pts or 2%, the Transports gave back 291 pts or 2%, the Equal Weight S&P gave back 106 pts or 1.5% while the Mag 7 got smushed – down 825 pts or 3.5%.

Friday’s eco data was again – mixed…personal income was much better – rising 0.8% vs. the expected +0.4%, personal spending was a tiny bit weaker at +0.4% below the estimate of +0.5% but well above the January reading of -0.3% (revised). All while the PCE Index (FED’s favored gauge) came in a teeny-weeny bit HOTTER than the expectation…. - Core PCE rising +0.4% m/m vs. the expectation of +0.3% while the y/y read came in at + 2.8% vs. the expectation of +2.7%.

But it was the U of Mich survey numbers that sent the algo’s into a selling frenzy…. Sentiment came in at 57 down from 57.9, and that is down from 71.1 in January. 1 yr inflation expectations now at 5% while the 5 – 10 yr expectation is 4.1% up from 3.9% in February…3.2% in January… Remember, I have been saying all along that inflation was going to be the issue this year….. In any event -

It is the end of the quarter – and asset managers are rebalancing / repositioning themselves –some are selling stocks (while others are buying stocks) – with the sellers favoring the safe haven assets – like bonds, gold and cash. This is all about the hysteria over tariff and inflation uncertainty – the worst part of all of this is that the sellers are thinking that this may just be the beginning and not the end…..while the buyers have the opposite opinion…..because if they didn’t they wouldn’t be buying stocks.

Look, the media would have you believe that every money manager (and retail investor) is a SELLER, but let’s be honest – that is just not the case….there have to be BUYERS – otherwise the markets would not function…so the issue is which side of the fence are you on? And to answer that question – you have to answer a bunch of other questions…. Starting with risk profile and time…..and then you have to be sure you are building a large cap, well diversified, broad portfolio….that includes more than just US stocks….you need some int’l, some fixed income and some alternative assets…in order to balance out the risk.

And if you have that, then you would see the bond part of your portfolio is up 3.4% (using the TLT as a proxy), you int’l is up 14.5% (using the FEZ – Euro Stoxx etf as a proxy), and if you have gold – that is up 17% ytd….and all of that offsets the weakness we are seeing in the US markets. So, while your overall portfolio may be down a bit, if you are properly allocated you should not be lighting your hair on fire.

And while it has been ugly for sure – you should not be surprised – we have been discussing this….….it’s been a longtime coming – multiple years of solid 25% - 30% returns are NOT the norm and you should not expect it to be the norm – Remember that the S&P is up 175% over the past 10 yrs….it is up 45% over the past 2 yrs….The Nasdaq is up 256% in the past 10 yrs and 57% in the past 2 yrs, while the Mag7 are up 2,225% in 10 yrs and 132% in the past 2 yrs…. . – So, you need to put it in perspective.

Remember these key points:

“Reversion to the mean is the iron rule of the financial markets” – John Bogle (and the mean is not 25%+ year in and year out) ………….and –

“Be greedy when others are fearful and fearful when others are greedy” – Uncle Warren (Buffet).

And while that ‘reversion’ is uncomfortable - a correction is good for the overall health of the markets. And if you are properly allocated then in the long run – you will be fine…..

Now, It’s the same story – It’s the end of the qtr., we have an earnings season about to start, we have tariffs that are set to hit on Wednesday at midnight and we have taxes due on the 15^th……So, investors, traders and algo’s are worried about weakness in the economy, coming earnings and the recent downward revisions, all due to the ongoing struggle with inflation and the potential impact of a trade war, which got worse over the weekend when both the WSJ and the WAPO reported that Trump wants to be more aggressive on tariffs – targeting every country ……and doesn’t care if foreign auto makers raise their prices – because American’s will just buy American and that will be good for America.

Bonds rallied (think safety) on Friday as stocks lost ground…the TLT up 1.4% while the TLH was up 1.3% and the AGG up 0.6%. The 2 yr is now yielding 3.84% down from 4% last week and the 10 yr is yielding 4.19% down from 4.33% last week. 30 yr mortgage rates are hovering at 6.6% while your Fidelity gov’t money market fund (cash) is paying you 3.97%.

GOLD continues to rocket higher…..this morning it is up $33 and is now kissing $3,150/oz…... Buyers tripping over each other to ‘get into the safety trade….. Look - Gold prices are surging due to a combination of economic, geopolitical, and monetary factors.

First, escalating global trade tensions, particularly driven by new U.S. tariffs have heightened economic uncertainty.

Second, central banks, especially in emerging markets like China, are aggressively buying gold to diversify reserves and reduce reliance on the U.S. dollar, a trend that intensified after the 2022 freezing of Russian assets. This structural demand has added significant upward pressure on prices, with reports indicating central bank purchases exceeding 1,000 tons annually since 2022 and continuing into 2025.

Third, expectations of U.S. Federal Reserve policy shifts are playing a role. The Fed’s signals of potential rate cuts later in 2025 lower the opportunity cost of holding non-yielding gold, making it more attractive to investors. And while that thesis is true – I am not in that camp…. I don’t see how the FED can lower rates this year unless of course – we go off the cliff – something that I do not see at the moment.

Oil is holding tight at $69.50….and is just a hair below all 3 trendlines…And while we remain in the $66/$70 range – my sense is that we will struggle right here…until we get more clarity on tariffs and the economy. Expect to hear more from OPEC+ any day now – since they committed to raise production in April and if they do, we should see oil prices retreat.

This morning – US futures are lower and the weak tone is amplified by …..Goldman’s Davey Kostin – who cut his year-end S&P target to 5700 from 6200 citing a higher recession risk (30%) due to tariff related uncertainty. Goldman is also calling for 3 rate cuts this year, July, September and November.

Other BIG name analysts – Morgan’s Mikey Wilson and JPM’s Mislav Matejka are jumping on that band wagon as well - becoming MORE cautious – Here we go….all of them tripping over each other to cut estimates trying to be the first ‘ones to suggest’ the future looks weaker due to inflation and tariff uncertainty. It’s the herd mentality….

We will hear from at least 5 FED heads this week…. Tuesday – Richmond’s Tommy Barkin, Wednesday Governor Adriana Kugler, Thursday Vice Chair Philly Jefferson and Governor Lisa Cook and Friday – it’s the BIG Dog – JJ Powell who will address the industry (and the country) at 11:25 am.

Dow futures are down 225 pts, S&P’s down 52, the Nasdaq down 245 pts while the Russell is down 24 pts. There is no eco data today that will drive the action at all…later in the week – we have S&P & ISM manufacturing PMI - both expected to be slightly contractionary, the JOLTS report and Quits rate, ADP employment change – expected to be +120k new jobs created, Factory Orders and Durable Goods, S&P and ISM services PMI – both expected to be expansionary, and the KEY report of the week – Friday’s NFP report…which is expected to show 138k new jobs created, an unemployment rate of +4.1% (no change) and Avg Hourly Earnings m/m and y/y both expected to be unchanged from last month…

Look – expect to see more pressure on prices today…..but we could also see the weakness continue into the next couple of weeks – due to the actual implementation date of the auto tariffs and the reciprocal tariffs, the start of earnings season on the 11^th and then we get hit over the head by Uncle Sam to ‘pay our taxes’ on the 15th….. So, just breathe……this too shall pass – it always does.

Remember - there is no reason to ‘rush out’ and be an aggressive buyer…. Patience is a virtue….…. April tends to be weaker in the first half of the month – and I don’t think that this trend changes this year.

The S&P closed at 5580 down 112 pts….…Recall, I have been saying that I expect us to test the march lows of 5504 before this is over…. don’t be surprised if it is today….. a failure to hold there would put S&P 5400 in the bull’s eye. If we trade there and hold the line – that will be good….but – let’s see how anxious the algo’s become – because the speed at which that happens is what is so unsettling……

Technology creates chaos in the markets by rapidly altering trading dynamics, amplifying volatility, and disrupting traditional valuation models. The "speed" here refers to how quickly these changes can destabilize prices, liquidity, or investor behavior—often measured in milliseconds to days. Today, AI and machine learning are accelerating this further – exciting for the day trader but frustrating for the long-term investor. What the long-term investor needs to remember is that chaos creates opportunity as well.

Get comfortable by being a bit uncomfortable, stay defensive while being cautiously optimistic. Stick to your plan, don’t panic and if the recent pullback is causing you undue stress then maybe you need to reconsider your plan….…. Call me to discuss.

Take good care,

Kp

Easy – One Dish Mediterranean Orzo

For this you need – the orzo pasta, red onions (diced), sun dried tomatoes chickpeas, spinach, garlic, lemon juice, olive oil and vegetable broth. Italian seasoning spice, s&p, and feta cheese.

Preheat your oven to 400 degrees.

Get a large Pyrex baking dish (8x11) – add in ¾ lb. of orzo, 1 can of chick peas (drained), 1 small jar of sun dried tomatoes - sliced (not the oil), 1 red onion (finely diced), a large handful of fresh spinach, 2 chopped garlic cloves, lemon juice from ½ lemon, splash of olive oil and enough vegetable broth to cover all of this. Mix well then place in the oven.

Cook for 30 mins – then remove – top with feta and enjoy. Healthy, simple and so goooooood.

Buon Appetito

Source: Bloomberg, CNBC, Reuters, Wall Street Journal

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Kenny Polcari is the Chief Market Strategist for SlateStone Wealth. Neither Kenny nor the partners of SlateStone Wealth are compensated in any manner by the issuers of any securities mentioned in the publication.