Market Commentary - March 2025

Monthly Update

I’ll start this March letter by going straight to the tariff discussion as we know it’s what most are focused on in light of the April 2^nd announcement from the President. But I also want to make clear that the US economy and markets were already experiencing adjustments, discussed below, outside of tariffs.

When analyzing the tariff strategy of the administration it’s important to put their use in different buckets in terms of categorizing their purposes. First, they are being used as a hammer to achieve some non-economic outcome like closing up our borders. Second, trying to protect some domestic industries like steel and aluminum from foreign competition. Third, encouraging production to come back to the US as to avoid tariffs and add manufacturing jobs. Fourth, use tariffs to raise revenue to help ‘pay for’ the expiring tax cuts this year. Lastly, pressure our foreign trading partners to lower their tariffs if they are above where we have any on them.

With that perspective, the news on April 2^nd was a combination of items number two, three, four and five. While we can all debate the use tariffs generally, what has shocked markets was the mathematical formula that the administration has used to calculate foreign tariffs in which we then responded to with the net result being possibly higher tariff rates.

At a time when the economy both in the US and globally has been very mixed, tariff shocks create further unease. With the possibility of deals to be had and the likely result hopefully being lowered tariffs in the aggregate, outside of the 10% blanket tariff we just placed on all of our trading partners, it’s premature to know how this will all play out. We will also watch to what extent manufacturing comes back to the US, which is a laudable goal as part of these tariffs.

The other market impactful thing I want to point out again (as I stated in my February letter) is the stock market action of the Mag 7 stocks. We are witnessing the possible end to the stock market dominance of the AI tech trade plus Tesla that at its peak combined to make up about 35% of the S&P 500 and contributed about half of the 2024 stock market returns for this index[1]. I think there are two main things that have unfolded over the past few quarters after the magnificent rally seen since late 2022. One, the revenue drivers of Generative AI have been modest so far, thus putting into question the massive amount of money being spent as to its return on investment benefits for the spenders. Two, the Chinese company DeepSeek has created its own AI model at a fraction of the cost of its US competitors by utilizing in part the data of these US models. Other Chinese companies have done the same, and elsewhere. What this proved is that the GenAI models being built are becoming commoditized and at the end of the day, it will be the users that will most likely be the biggest beneficiaries. At some point too, the enormous level of capital spending on GenAI will slow and the providers of that AI infrastructure will be negatively impacted.

What’s noteworthy is that in contrast, finally international stock markets have picked up the baton from the US. As I write this and the S&P 500 is lower by 7% on the year with about half being this particular day, the German DAX is higher by 9% year to date, the Spanish IBEX is up by 14%, the Italian MIB has rallied by 8.4% and the Hang Seng is higher by 13.9% to name a few[2]. What all have in common is they’ve been left for dead over the past decade, have gotten cheap and are now possibly rallying in anticipation of change. For Europe, change is coming via a massive increase in defense spending, along with infrastructure spending in Germany and the realization that overregulation via too many rules, red tape and bureaucracy have smothered economic growth. For China, the DeepSeek news has reinvigorated their tech sector and even Xi Jinping is embracing its top tech CEOs by meeting with many of them in February. Also, the big strain in their economy has been distress in the housing market and while there is more pain to come, it seems that home prices are beginning to show signs of bottoming.

With regards to the US economy, over the past year the GDP growth rate of about 2.5% has mostly rested on three pillars[3]. One, upper income consumers that have prioritized recent spending on travel, restaurants, etc… and that have been benefiting from the wealth effect of high stock and home prices. Second, anything tied into the AI capital spending ecosystem. Third, anything touching government spending/incentives, including the Inflation Reduction Act, Chips Act, infrastructure spending bill, healthcare via Medicare, Medicaid and transfer payments. With DOGE (Department of Government Efficiency) and a greater focus on government spending, the last pillar is obviously now in big focus and any further faltering in the stock market could negatively impact upper income spending.

Digging deeper with DOGE, there are two ways to view its goals. One is to lift the hood on where our tax dollars are being spent in the context of $36 Trillion of federal government debt that is ever growing and a budget deficit that is above 6% of GDP[4]. The second, to shrink the size of the federal government workforce on the hopes it would cut the bureaucracy which would lead to a more effective and efficient government. For perspective, the size of the federal workforce totals about 3 million workers out of a total US workforce of about 160 million people[5].

I am not going to get into a discussion about the methods used and so forth of DOGE. With clients that are Republicans, Democrats and Independents, you’ll never hear us getting political. As investors we don’t invest your money with our politics. We cut through that and determine that whatever policies are enacted from whatever administration is in place, we do the math, try to figure out the impacts and then react accordingly. Not whether we agree or not with what policies are implemented. The markets don’t care if we like certain initiatives and not others, they only care about what directly impacts economic activity, earnings and interest rates.

Conclusion

A confluence of things are taking place that has resulted in market dislocations and economic worries and it is not just tariffs. This is not the first time however, and whatever the causes, whatever the reactions, we’ve been through challenging times before and markets don’t go up in a straight line. History is replete with storms but we’ve seen them before and do our best to power through.

We are possibly in the midst of some major change, both in the global economy and markets and the investing playbook that worked so well over the past few years might be transitioning from just owning the Mag 7 for example and into owning other things. And this is not only about tariffs. We are thinking everyday of what this possible new economic and investing landscape will look like and how best to position for it.

Whatever comes our way though, it remains vital that investors have adequate short-term liquidity over the next 2-3 years. Knowing that period is covered can help separate the balance of one’s portfolio from the ups and downs of the market. Time horizon is always crucial and is always the best friend of any investor.

Disclaimer

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. The market and economic data is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The information in this report has been prepared from data believed to be reliable, but no representation is being made as to its accuracy and completeness.

Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services.

The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index.

The Russell 2000 Index is an unmanaged index generally representative of the 2,000 smallest companies in the Russell 3000 index, which represents approximately 10% of the total market capitalization of the Russell 3000 Index.

The Stoxx Europe 600 index also called the STOXX 600 is an indicator of the performance of the European stock market. It measures the performance of large mid and small-cap companies across 17 countries in Europe. The number of constituents is fixed at 600.

The Hang Seng Index is a freefloat-adjusted market-capitalization-weighted stock-market index in Hong Kong. It is used to record and monitor daily changes of the largest companies of the Hong Kong stock market and is the main indicator of the overall market performance in Hong Kong. These 82 constituent companies represent about 58% of the capitalization of the Hong Kong Stock Exchange.

Nothing in this material should be construed as investment advice offered by Bleakley Financial Group, LLC or Peter Boockvar. This market update is for informational purposes only and is not meant to constitute a recommendation of any particular investment, security, portfolio of securities, transaction or investment strategy. No chart, graph, or other figure provided should be used to determine which securities to buy, sell or hold. No representation is made concerning the appropriateness of any particular investment, security, portfolio of securities, transaction or investment strategy. You should speak with your own financial professional before making any investment decisions.

Past performance is not indicative of future results. Neither Bleakley Financial Group, LLC nor Peter Boockvar guarantees any specific outcome or profit. These disclosures cannot and do not list every conceivable factor that may affect the results of any investment or investment strategy. Risks will arise, and an investor must be willing and able to accept those risks, including the loss of principal.

Certain statements contained herein are statements of future expectations and other forward looking statements that are based on opinions and assumptions that involve known and unknown risks and uncertainties that would cause actual results, performance or events to differ materially from those expressed or implied in such statements.

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful. The fast price swings in commodities and currencies will result in significant volatility in an investor’s holdings. International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets. The fast price swings in commodities and currencies will result in significant volatility in an investor’s holdings.

The Russell 2000 Index is an unmanaged index generally representative of the 2,000 smallest companies in the Russell 3000 index, which represents approximately 10% of the total market capitalization of the Russell 3000 Index.

The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index.

Precious metal investing involves greater fluctuation and potential for losses.

The information presented is for educational and informational purposes only and is not intended as a recommendation or specific advice. Cryptocurrency and cryptocurrency-related products can be volatile, are highly speculative and involve significant risks including: liquidity, pricing, regulatory, cybersecurity risk, and loss of principal. A cryptocurrency fund may trade at a significant premium to Net Asset Value (NAV). Cryptocurrencies are not legal tender and are not government backed. Cryptocurrencies are non-traditional investments, resulting in a different tax treatment than currency. Federal, state or foreign governments may restrict the use and exchange of cryptocurrency. The use and exchange of cryptocurrency may also be restricted or halted permanently as regulatory developments continue, and regulations are subject to change at any time. Cryptocurrency exchanges may stop operating or permanently shut down due to fraud, technical glitches, hackers, malware, or bankruptcy. ​

Peter Boockvar is solely an investment advisor representative and Chief Investment Officer of Bleakley Financial Group and not affiliated with LPL Financial.

Advisors associated with Bleakley Financial Group may be: (1) registered representatives with, and securities offered through LPL Financial, Member FINRA/SIPC, (2) registered representatives with, and securities offered through LPL Financial, Member FINRA/SIPC and investment advisor representatives of Bleakley Financial Group; or (3) solely investment advisor representatives of Bleakley Financial Group, and not affiliated with LPL Financial. Investment advice offered through Bleakley Financial Group, a registered investment advisor and separate entity from LPL Financial.

Approval #719807

[1] Bloomberg

[2] Bloomberg

[3] Bloomberg

[4] Bloomberg

[5] Pew Research