Below are the economic and market highlights for the week:
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The core Personal Consumption Expenditures (PCE) Price Index jumped 0.40% in February. The reading was hotter than expected, reigniting concerns over persistent inflation within the economy at a time when a global trade war looms just over the horizon. The core PCE excludes food and energy and is the Fed’s key inflation measure. Including February’s bump, the 12-month core inflation rate grew 2.80% while the broader, headline reading rose 0.30% on the month and was higher by 2.50% from a year ago. The release prompted a sharply negative reaction by investors on Friday. A broad uptick in services prices and goods prices offset the slide in energy and gasoline. Consumers also grew more cautious during the month as spending rose 0.40%, below the 0.50% forecast. The spending miss came despite a robust, 0.80% rise in personal income for the month as households elected to save rather than spend due to uncertainty over the direction of the economy. The personal savings rate increased to 4.60%, the highest since June 2024.
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Consumer sentiment soured in March on growing tariff and trade war concerns. Consumer sentiment hit 57 in March, below estimates of 57.9. Thematically, the story remains the same as it has been for the last month. Inflation remains at the forefront for consumers and inflation expectations continue to touch multidecade highs. Consumers’ long-run inflation expectations surged from 3.50% in February to 4.10% in March. The change in expectations, which had previously cut along political ideology, is beginning to broaden, with a sizeable shift towards higher expectations by both Independents and Republicans. Inflation expectations have not been that high since early 1993. In a rare consensus across all demographic and political affiliations, consumers have worsening expectations for their personal finances, business conditions, employment, and inflation.
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For the second straight month, consumers and companies rushed to get their orders filled ahead of the Trump administration’s tariffs going into effect. Orders for long-lasting durable goods rose almost 1% in February. Demand was exceptionally strong for metals and new autos. The report beat economists’ expectations of a -1% decline but the news is not as good at it might otherwise seem. February benefitted not only from the front-running of tariffs, but also by lower than expected decline of passenger planes, which can be volatile. Non-defense capital goods orders excluding aircraft, a closely watched metric as a proxy for future business spending, declined 0.30% in February to mark the first drop in four months. Economists interpreted that as a sign that manufacturers are heading to the sidelines until they get greater clarity on the economic outlook.
- Home builders saw renewed homebuyer interest. New home sales rose 1.80% in February to an annualized rate of 676K. The increase in sales was driven by higher demand for homes priced between $300K and $400K which accounted for 34% of new homes sold in February. That was the highest share in over a year and seven percentage points higher than January. Even though demand was higher for more affordable homes, the median price of a new home actually fell to $414,500 from $420,900 in the year ago period. Considering the uncertain economic backdrop, builders are willing to concede price and to continue to offer incentives to attract prospective buyers in order to clear their inventory.
Stocks Fall on Same Old Story
The Dow Jones Industrial Average, S&P 500, and Nasdaq Composite index snapped a three-day winning streak on Thursday and fell sharply on Friday as concerns grew over more tariffs going into effect in early April. This week it was the auto industry’s turn in the spotlight. The Trump administration announced 25% tariffs on all cars not made in the U.S. as well as on key auto parts including engines, transmissions, and powertrain components, effective April 2nd. Analysts estimate this could add as much as $4,000 to $15,000 to the sticker price, depending on how much of the car is imported. The auto tariff announcement coincides with a hotter than expected core PCE print which suggests the Fed will likely refrain from more interest rate cuts in the near future as they wait for a better picture on how tariffs will impact inflation. Tariffs have historically been viewed as one-off events that don’t feed through longer-lasting inflationary pressures. However, the scope of Trump’s tariffs could have the potential to ignite an aggressive global trade war that could further aggravate inflation and leave prices elevated for an extended period of time. Considering the uncertainty, it is no surprise the Fed, consumers, and businesses are all in wait and see mode until the economic outlook improves. With major tariffs set to start next week, investors were quick to take early week gains off the table and de-risk heading into the weekend and next week’s Q1 close.
The Week Ahead
Next week’s key reports include Nonfarm Payrolls, ISM Manufacturing, and ISM Services.
Wealth and Wisdom: A Keynote on Biases and Blind Spots in Financial Success
One of our advisors, Tyler Ozanne, was the keynote speaker for a Southern Methodist University alumni organization in Dallas yesterday where he addressed several realities about wealth creation, wealth management, and wealth preservation. In his keynote presentation, Tyler provided a deeper understanding of the complex relationship people have with money, focusing on how emotions, biases, and individual experiences shape financial decisions, behaviors, and risk tolerance. Tyler’s key message reminds us that knowing ourselves and our values and prioritizing what’s important to us can lead to a financially secure life filled with happiness and meaning.
Tyler shared insights from Morgan Housel’s book, The Psychology of Money, and explained how the market’s performance during one’s formative years, typically between ages 15 and 30, significantly influences our investment beliefs. An individual who is currently 28 years old has experienced an average annual return of 12.45% on the S&P 500 from age 15 to today. In contrast, someone who is currently 80 years old witnessed an average return of only 1.5% during their formative years from age 15 to 30. As a result of these realities, younger individuals, especially Millennials and Gen Z, who have witnessed strong market growth in recent years, particularly since the 2008 financial crisis, tend to be more optimistic and confident in the power of the stock market, often focusing on growth and higher-risk, high-reward strategies. The market’s consistent upward trend over the past decade has created a belief that the market will continue to rise, shaping their investment behavior as more risk-tolerant and aggressive. On the other hand, older generations, particularly Baby Boomers and those who lived through the 1970s and 1980s, experienced much more volatile market conditions during their formative years. The stagflation of the 1970s and the dot-com crash of the early 2000s contributed to a more cautious outlook on investing among older investors. Older generations are more likely to be risk-averse, valuing stability, income generation (such as dividends), and more conservative investment strategies. They also tend to favor preserving wealth over pursuing higher returns, reflecting a more defensive approach shaped by their personal experiences of market downturns.
In his presentation, Tyler reinforced the importance of every individual taking time to thoughtfully determine their definition of wealth and what they value most in order to avoid foolish decisions and strategies that can be detrimental to financial well-being and stability in the long run. To build a solid financial foundation, it is wise to adopt long-term, patient approaches to wealth accumulation. Oftentimes, human behavior and human irrationality gets in our way. Tyler shared a number of insightful quotes to illustrate these points.
“Comparison is the Thief of Joy” – President Theodore Roosevelt
Focusing on what other people have – material possessions, lifestyles, or achievements – makes it hard to appreciate our own accomplishments and find gratitude for what we already have.
“The big question about how people behave is whether they’ve got an Inner Scorecard or an Outer Scorecard. It helps if you can be satisfied with an Inner Scorecard.” – Warren Buffet
Charting our own course based on what fulfills us (Inner Scorecard) brings more happiness and contentment than letting envy or insecurity steer our choices (Outer Scorecard).
“Too many people spend money they haven’t earned, to buy things they don’t want, to impress people they don’t like.” — Will Rogers
This quote reminds us that humans are inherently irrational, and sometimes in the pursuit of “more,” individuals might take unnecessary risk and jeopardize essential, irreplaceable assets – such as financial security, personal relationships, health, or peace of mind.
In his closing remarks, Tyler pointed out pursuing more at all costs simply for more’s sake will leave us wanting. It’s best to define our own vision and meaning for wealth accumulation and then pursue those goals with wisdom and humility. He shared that Dolly Parton said it best with her advice, “Don’t get so busy making a living that you forget to make a life.”