President Trump has outlined many goals for his administration, and they include finding an end to the Russia-Ukraine war, peace in the Middle East, and trade agreements that lead to a fair and level playing field for the US. However, these goals may be more difficult than President Trump imagined. Trump’s 100th day in office will take place on April 30, 2025, and it would not surprise us if the President expected the impossible and wanted to have all of these items completed by then. But it is not to be. It was always ambitious, but there were roadblocks and minefields in every direction. Even President Trump’s goals of maintaining a safe border and eliminating government waste and redundancy are being countered by partisan legal hurdles.
Obsessed
Mediating a truce between President Vladimir Putin and President Volodymyr Zelensky must be frustrating because neither leader seems willing to concede anything. If this is true, there can be no negotiation. And this annoyance is clear from a statement by Secretary of State Marco Rubio that if progress toward a peace accord cannot be made in coming days, the US might “move on” from efforts to end the conflict. If the US exits the negotiation process, it could either force a real negotiation to begin or unfortunately result in Ukraine falling to Putin. The fall of Ukraine would be a disaster for Europe and the Western world.
However, the media is not focused on Europe or the Middle East, it is obsessed with tariffs. Note the definition of obsessed: to preoccupy or fill the mind of (someone) continually, intrusively, and to a troubling extent. The world is so obsessed with tariffs that as a contrarian by nature, we believe it is troubling and therefore important to look at the larger picture. Financial history suggests that whenever a consensus opinion is totally one-sided, it is usually wrong. And in a display of how emotional (opposite of rational) the current marketplace is, comments by President Trump that he does intend to fire Jerome Powell (we doubted that would happen) and by Treasury Secretary Scott Bessent indicating he believes there will be a de-escalation in U.S.-China trade tensions (we hope so) resulted in a massive 1,016.57 jump in the Dow Jones Industrial Average. If this is all it takes to move the markets more than 2.5% in a day, imagine what would happen if some positive news does appear!
To date, economic data has been impressive. Last week we reported the positive news on the inflation front with the CPI, PPI, and import/export indices all showing a sharp deceleration in inflation. This week’s reports show an economy that is stronger than expected.
Total retail and food services sales grew 4.6% YOY in the month of March and 4.1% YOY in the first quarter. In March, motor vehicles & parts grew 8.8% YOY yet sales excluding vehicles grew a healthy 4.5% YOY. In March, furniture and home furnishings store sales soared 7.7%, health and personal care sales rose 7.2%, nonstore retail sales grew 4.8%, miscellaneous store sales increased 4.7%, and food services and drinking places rose 4.8%. Gasoline station sales fell 4.3% YOY. Real retail sales rose 2.1% YOY, which was the best year-over-year growth rate since February 2022, or the pre-pandemic era. See page 3.
Industrial production fell 0.3% month-to-month in March but increased 1.3% YOY. Manufacturing output expanded 0.3% in March following a 1% increase in February and mining output climbed 0.6%. A 5.8% drop in utilities output was the drag on total production in March, but this decline was due primarily to warmer-than-expected weather. Overall, output increased at a solid annual rate of 5.5% in the first quarter. Economists will be monitoring industrial production for signs of weakness due to uncertainty regarding President Trump’s tariff policy; but to date, US industrial activity is relatively robust. See page 4.
The residential housing market remains in a slump, but the National Association of Home Builders (NAHB) index for March was stable and the headline index increased a point to 40. Single-family sales rose 2 points to 45 and traffic rose 1 point to 25. As in almost every forecast with expectations, expected 6-month sales declined 4 points to 43. Housing permits and starts have been erratic in the last two and a half years due to higher and volatile interest rates. Nevertheless, new home permits fell a mere 0.2% YOY in March to 1.48 million units. Housing starts rose 1.9% YOY to 1.32 million units, which was the first year-over-year increase since August 2024. See page 5.
We were also encouraged by the first quarter earnings announcement from 3M Company (MMM – $136.33), which jumped 8.12% on a closing basis, after the company reported impressive first quarter results. This diversified technology company showed solid sales gains in the US and China as well as margin improvement. More importantly, the company stated it is not lowering 2025 guidance but is adding a “tariff sensitivity” to show how much tariffs could lower its current forecast. It expects earnings of $7.60 to $7.90 a share this year, but tariffs could lower this by 20 to 40 cents a share, or as much as 2.5% to 5%. In our view, this quantifying of the potential tariff impact could help lower the anxiety surrounding tariffs.
Meanwhile, analysts are rapidly lowering earnings forecasts for this year and next. Both S&P Dow Jones and LSEG IBES have finalized consensus earnings estimates for calendar 2024 at $233.36 and $242.73, respectively. The S&P Dow Jones estimate for 2025 fell $1.04 this week to $264.23 and the LSEG IBES estimate fell $1.48 to $266.02. Similarly, the 2026 consensus estimates fell $0.97 to $302.28 and $1.66 to $304.11, respectively. LSEG IBES has a new estimate for 2027 of $342.84, down $1.46, this week. Overall, IBES estimates have declined more than 1% in the past three weeks. See page 7. If this continues it is likely that analysts will overshoot the negative impact of tariffs on corporate earnings.
However, even as earnings forecasts decline market valuation is improving. Incorporating 2026 S&P Dow Jones estimates, the current 12-month forwardPE multiple is 17.5 times and below its long-term average of 17.9 times for the first time since November 2023. When this PE is added to inflation of 2.4%, it comes to 19.9, which is within the normal range of 15.0 to 24.1 for the first time since September 2023. See page 6.
Although economic data continues to display a stable and resilient US consumer and economy, there are several worrisome issues in the financial markets. The dollar has dropped below $100 for the first time in three years. This decline will make imports more expensive and exports more difficult and therefore it could be more negative for US trade than Trump’s proposed tariffs. Plus, there have been issues in the Treasury markets in terms of a lack of liquidity and therefore we are watching the SPDR Bloomberg High Yield Bond ETF (JNK – $93.50) for a sign of financial stress. It has been falling too, signaling a rise in high yield interest rates. The bond market has often been the trigger for equity market declines and both of these charts are worthy of our attention. See page 8.
There was little change in our technical indicators this week and our view of the equity market remaining in a one-to-three month trading range bound by the intraday lows of April 7 or 8 and the 200-day moving averages in the various indices is also unchanged.
Gail Dudack
PLEASE NOTE: Unless otherwise stated, the firm and any affiliated person or entity 1) either does not own any, or owns less than 1%, of the outstanding shares of any public company mentioned, 2) does not receive, and has not within the past 12 months received, investment banking compensation or other compensation from any public company mentioned, and 3) does not expect within the next three months to receive investment banking compensation or other compensation from any public company mentioned. The firm does not currently make markets in any public securities.
