Same As it Ever Was

By Crest Capital Advisors on March 31, 2025

Dow: (0.96%) to 41,583.90
S&P 500: (1.53%) to 5,580.94
Nasdaq: (2.59%) to 17,322.99
Russell 2000: (1.64%) to 2,023.27
Bitcoin: 84,220
10 Year Yield: 4.25%
Outperformers: Consumer Staples 1.65%, Energy 0.77%, Real Estate 0.45%
Underperformers: Technology (3.65%), Communication Services (3.23%)

US stocks were lower for the week with the S&P 500 back near correction territory after attempting a rally on Monday. The declines were somewhat broad-based, though the Equal-Weight S&P 500 Index continues to outperform as yesterday’s leadership (the Mag 7 and US Growth/Tech stocks) is today’s laggard. More on this below under the “asset allocation” section.

In terms of what impacted markets this week, the topic of trade and tariffs continues to dominate the news flow with all eyes now looking to the April 2nd reciprocal tariff announcement next week. The uncertainty continues to weigh on sentiment as we see many of the survey reports posting extremes that we tend only to see at market lows. Contrarians take note!

The economic data was mixed to negative this week. The February Core PCE came in 0.1% above estimates, though the headline level was in-line. The problem for markets is the persistently higher Core readings are likely to keep the Fed on the sidelines for longer. When the market environment smacks of panic selling, traders have been conditioned to expect “the authorities” to step in. With the PCE today, it would seem the Fed is not yet close to doing so.

While negative sentiment prevailed once again this week, there were still some positive developments including: 1) Trump said April 2nd reciprocal tariffs will be “very lenient” while the EU was reportedly preparing concessions as of press time; 2) Trump floated the possibility of reducing tariffs on China to get a deal done on TikTok; 3) Congressional Republicans have sped up reconciliation and seemingly reached a consensus on including a debt ceiling raise; The closer we get to receiving ‘goodies’ (tax offsets, less regulation, etc.) the less the focus remains on just tariff; 4) Service sector outperformance continued as flash services PMI unexpectedly expanded in March; and 5) employment data continues to be solid.

Sentiment Indicators in Full Blown Panic Mode

The American Association of Individual Investors (AAII) percent of bearish investors has been above 50% for 5 straight weeks now for only the third time in history! The first time was in October 1990 and that marked a major low and the other time was at the lows of the 2022 bear market. Both of these prior instances were incredible buying opportunities. Is this time different?

In addition to the AAII data, the Conference Board came in this week and shows the largest ever plunge in stock market expectations, which is also a contrarian buy signal! Not even Trade War 1.0 or Covid in 2020 saw this metric fall by this magnitude in just 2 short months. The bottom line is emotion and investing don’t mix very well.

One final note on the Conference Board data from their report: “March’s fall in confidence was driven by consumers over 55 years old…”

And who are the consumers of mainstream media reporting? That’s right, its individuals over 55 years of age.

And Yet, Credit Remains Calm

Credit spreads continue to signal to us that the underlying strength of the economy remains intact. Those fearing the “R” word are responding to emotion and price, not fundamentals.

Asset Allocation For the Win

For the past few years, asset allocation has been a drag on portfolios. By far the winningest trade was to put everything into US Growth stocks…with the top 10 Growth Stocks contributing over 37% of the S&P 500 performance, this had the affect of pulling up the S&P 500 along with it. International stocks, Value stocks, Small/Mid Cap stocks…they all underperformed. And don’t even get us started with bonds which basically produced return-free risk in the face of rising interest rates! 

But all that has changed dramatically in 2025! The winning trade has been suffering outsized losses, whereas the previous ‘laggard’ investing styles/themes have been playing catch up. So while the headline index moves on down days FEELS bad, the reality is that there is a lot that is still working in your portfolio.

As of the close Thursday, March 27th, we noted the following:

• European Stocks are UP 12.8% YTD
• International Stocks are UP 8.3% YTD
• US Value Stocks are UP 2.4% YTD
• US Bonds are UP 2.0% YTD
• The S&P 500 Index is DOWN 3.0% YTD
• US Growth Stocks are DOWN 7.8% YTD

Here’s a chart to put it into perspective…

M&A Quietly Picking Up, Despite What You Heard

With the arrival of a new administration, one that was perceived to be more business friendly, there was an immediate up-tick in expectations for more mergers and acquisitions (M&A)…particularly after the previous administration took a hard line towards scrutinizing M&A transactions. But that optimism unwound fairly quickly as the market hit an air pocket in mid-February on rising uncertainty and tariff fears. Considering what happened with all of the sentiment indicators, you’d think no transactions whatsoever would take place as businesses freeze, waiting for this uncertainty to pass.

But that would not be a fair characterization of what actually is happening. Take a look below at all of the M&A deals that have been announced in recent weeks. One would be forgiven for being surprised by the volume of deals, considering how poor the sentiment has gotten.

• Google to acquire Wiz, a cloud security platform, for $32B all-cash.
• ServiceNow confirms to have signed agreement to acquire AI-powered assistant developer
• Moveworks for $2.85B in cash and stock deal.
• Softbank confirms $6.5B in cash acquisition of Ampere computing (chip designer).
• Scopely buys Niantic’s Games Business for $3.5B.
• Roper to acquire provider of SaaS solutions for Applied Behavior Analysis therapy CentralReach from Insight Partners for a net purchase price ~$1.65B, including a $200M tax benefit.
• QXO Confirms to Acquire Beacon Roofing Supply at $124.35/shr in Cash for $11B.
• Building materials company James Hardie Industries has agreed to buy AZEK, a maker of home decking, railing and pergolas, in a cash-and-stock deal worth $8.75 billion.
• Clearlake Capital is acquiring Dun & Bradstreet —a leading provider of business data and analytics—in a $7.7 billion all-cash deal, including debt, offering shareholders $9.15 per share.
• The Doctors Company to Acquire ProAssurance Corporation for $25/shr in Cash for a total transaction of $1.3B 

Source: Hamilton Lane (March 2025)

Crypto Comments

What role should cryptocurrencies play in a portfolio? This is a tough question for capital allocators like us. The reason is that for most of their existence, cryptos have behaved like a three-times leveraged bet on the Nasdaq. When the Nasdaq is in an uptrend, a three-times leveraged bet sounds like a great idea…to gamblers anyway. When the Nasdaq does well, cryptos do even better. But when the Nasdaq enters a downtrend, things get a lot more painful for crypto owners. This makes crypto unsuitable for a large swath of investors.

Why does this correlation exist? Is it because excess liquidity in the system tends to flow into both asset classes at the same time? Or is it because the Nasdaq and crypto both reflect animal spirits and the belief in a new world in which the old investment rules have become obsolete? Either way, we need to see more evidence that Bitcoin is indeed it’s own asset class worthy of the store of value argument its proponents put forth. Until then, we see it as merely a speculative vehicle with massive volatility.

Economic Funnies

Crazy Stat(s) of the Week

• Friday marked the 5th time this month that the Nasdaq has declined 2%+. This is the most for a single month since June 2022.

• The dollar value of S&P 500 ETF Put Volume (Bets the index will move lower) has surged over the past 2 weeks. This only happened 2 other times this decade: September/October 2022 and March 2020. Both prior periods marked market lows.

Quote of the Week

“The stock market is filled with individuals who know the price of everything, but the value of nothing.”                

–      Philip Fisher

Calendar of Events to Watch for the Week of March 31st

Next week promises to keep the focus on Tariffs with the arrival of President’s Trump so-called “Liberation” Day on April 2nd. Markets continue to throw fits over the uncertainty surrounding these tariffs that we now believe the likeliest outcome is for markets to rally once this event is behind us. (Markets have front run and already priced in worse case outcomes!) Anything ‘better than feared’ could set us up for a second attempt at a relief rally (this past week’s attempt failed thanks to the auto tariff announcement on Wednesday).

In addition to the tariff focus, the next spotlight remains on the Fed and when they may ride to the rescue. Unfortunately on this front, the Fed has been perfectly content to sit on its hands. Friday’s inflation report via the PCE will only reinforce that default position. But, there is a chance the employment report on Friday could reluctantly pull the Fed off the sidelines. You see, we have clearly arrived at yet another period of “bad news is good news”. In this case, any material weakening in the labor market (bad news for the economy) would likely be greeted by the good news effect of a Fed that is biased again towards cutting rates. And we all know that lower rates are good for the stock market…hence, bad news is good news. That pretty much sums up where we are right now, with traders grasping at straws and looking for help. It’s fairly apparent that help isn’t coming from a moderation in Trump’s policy or rhetoric. So, it will have to come from elsewhere. Paging Jerome Powell.

Monday 3/31 – The March Chicago PMI is expected to come in at 44.1, down from 45.5 last month. The Dallas Fed Index is expected to contract by -5.0, similar to last month’s -8.3 reading.   

Tuesday 4/1 – The March ISM Manufacturing Index is expected to fall back into contraction at 49.5, down from 50.3 last month. February Construction Spending is expected to show a 0.4% increase. The JOLTS Job Openings Index is expected to show a decline in openings to 7.665m from 7.740m last month.

Wednesday 4/2 – The ADP Private Sector Payroll report is expected to show 120k net new jobs. By far the big news of the day, if not the week, will be the unveiling of Trump’s reciprocal tariffs today.

Thursday 4/3 – The March ISM Services Index is expected to remain robust at 53.3, down just a few ticks from last month’s 53.5 level. The Weekly Unemployment Claims will continue to get scrutiny but so far these weekly releases have remained in check.  

Friday 4/4 – The 2nd biggest event of the week will be the release of the Non-Farm Payrolls report. Economists are expecting 125k net new jobs v. 151k last month and the unemployment rate is expected to tick up to 4.2% from 4.1%. Unless and until the jobs market shows signs of deterioration, the Fed is likely to remain on the sidelines with respect to rate cuts. Source: MarketWatch / FactSet (March 2025)