Put put

Uncertainty is the word of the moment. Federal Reserve Chair Jerome Powell used the word 16 times in his press conference this week. Who isn’t uncertain? The market now has two potential exits from the current volatility, a Trump put and a Fed put—and it may need them both. Some market observers suggest this week’s relatively dovish Fed decision and press conference marked the start of the Fed put; Trump might not blink until the market trades significantly lower. The Fed doesn’t want a recession. Perhaps in the name of his deeply held beliefs and legacy, Trump plans to get any bad news over with now. The first year of presidential terms, interestingly, has historically been the most susceptible to recession of the four. Hmm. Bears continue to outnumber bulls in the American Association of Individual Investors and Investors Intelligence readings, a good sign as these are considered to be contrary indicators. The equal-weighted S&P 500 seems to have bottomed along with inflection points in breadth and momentum. Analyst expectations remain “uncorrected,” though, with S&P 500 forward earnings reaching a record $279 last week. Nearer term, Q1 earnings expectations have slipped due to caution from company managements, which should lower the bar for upside surprises. At 22 days, this was the sixth-fastest correction since World War II. In general, fast drops come with fast recoveries; the five faster corrections took an average 75 days to recover. Recently, economic policy uncertainty rose to its second-highest level since 1985 (behind only the outset of the pandemic)! Of note: economic policy uncertainty has historically been bullish for the market going forward, with a surge like the present leading to an average 21.5% gain 12 months later. In fact, Piper Sandler research finds that in the 28 market corrections of the past 60 years the correction’s catalyst stopped getting worse as the market bottomed. All we need is for things to get less worse. And now, we wait for the April 2 global reciprocal tariffs date.

Is April 2 the new April Fools’ Day? This winter, restaurant sales dropped at an 8.5% annual rate, the lowest in three years, while grocery store sales improved. The equity correction and a chill in housing have consumers worried. Meantime, unemployment looks set to increase to 4.5% per surveys from the NFIB and the Conference Board. Job losses would slow the pace of wage gains at a moment when consumers are feeling squeezed already. Consumer sentiment has been falling lately, with data showing consumers are most worried about future conditions. Inflation, at least, has come down. This week, the Manheim Used Vehicle Index fell 1.6%. This is a notable decline and signals ongoing deflation in core goods prices. Next up, Trump has been calling his April 2 tariff announcement “Liberation Day.” Per Wolfe Research, straight reciprocity might bring a 2-3% increase in global average tariffs. Incorporating value-added taxes could multiply that number to 13%. Rates like that would be a shock to the market. Wither the Trump put? The markets are bracing for April 2.

Sounds grim—is it? Egg prices, which had turned into a symbol of prices run amok in this winter of discontent, have now fallen 40% in the past week or so. This alone could lower CPI by 0.1% even as gas prices continue to come down. Unemployment claims, corporate profits and corporate credit spreads currently indicate a strong economy. Even though consumer confidence is soft, Trump’s approval ratings remain strong. Trend Macro thinks this drove Schumer to concede on the GOP continuing resolution to prevent a shutdown and points the way to GOP unity in quickly extending, or even deepening, the expiring 2017 tax cuts. UBS notes that leading indicators currently point to a moderation to trend growth, not a recession, while 22V Research expresses a “high conviction” that a recession would be mild if one did arrive. Currently, forward earnings growth is at a healthy 11%, while recessions historically tend to start when forward earnings growth is around 2%. (Going back 40 years, the highest such figure at the outset was 8.1% in 2007, just before the global financial crisis.) I’m uncertain. Are you? With a Fed put in hand, we just need a Trump put. Put put. A hole in two!

Positives

• The Powell put Uncertain but patient is how Fed Chair Powell described the FOMC’s stance in his post-meeting press conference. Both economic activity and labor market conditions remained “solid.” And though the “dots” revised 2025’s growth down to 1.7% for 2025, the medium-term shows growth in line with potential. Though he mentioned the word “tariff” 47 times, his base case is tariffs will have a “transitory” effect on inflation. (Remember “transitory?” I bet you do.) Indeed, despite projecting 2.8% core PCE for 2025, the median projection shows no increase in core inflation in 2026, and 50bps of rate cuts this year. Apparently unable to agree on any adjustment to rate policy considering threats to both sides of the Fed's mandate, the Fed virtually ended quantitative tightening. And the cherry on top: Powell acknowledged that market declines are material to the Fed’s policy outlook.
• Still shopping Headline February retail sales missed expectations at 0.2% m/m vs. consensus of 0.6%, driven by weak restaurant and clothing sales. However, the control group, which feeds into GDP, rose by 1% m/m vs 0.4% expected and a decrease of 1% last month. This suggests January's weakness wasn't the start of a broader decline in spending, nor was the surge in December a one-off. While consumers could be just front-loading their purchases due to tariff concerns, the categories that would likely be impacted by front-loaded demand, furniture and general merchandise, have seen sharp gains since the election. Inventory-to-sales ratios remain contained, so any consumption soft-spot here is unlikely to become a liquidation that could trigger a recession.
• Still manufacturing Industrial production advanced 0.7% in February, faster than consensus estimates (0.2%) and up 1.4% y/y, partly due to automakers rushing to build inventory before threatened tariffs. Although the headline exaggerates strength, the report suggests industrial activity remained resilient last month, with little drag from uncertainty. Total capacity utilization rose 0.5% to 78.2% but remained below its long-run (1972-2023) average by almost 2%.

Negatives

• Stubborn housing uncertainty Housing starts jumped in February, bringing the series to the upper end of its range since 2022. Total starts increased 11.2% m/m, to 1.501m units, well above the 1.385m units forecast. However, permit issuance declined 1.2% m/m, driven by multifamily permits (down 3.1% m/m), while single-family permits declined (off 0.2% m/m). Barclays takes a stronger signal from the headline permits number as it has historically accurately identified overall trends in the housing market and represents a larger sample size than housing starts. The downward trend of building permits in the past three months suggests demand may be beginning to wane, driven by elevated mortgage rates and uncertainty surrounding the housing market as a whole. Meanwhile, existing home sales rose 170K (4.2% m/m) in February, to a seasonally adjusted rate of 4.26 million, above consensus expectations for a 130K decline to 3.95mn but still down 1.2% over the year. The level of existing home sales remains well below the period between the Great Recession and the pandemic.
• Builders are on the front line The NAHB housing market index fell three points to 39 in March (consensus: 42), the lowest level since August, prior to the Federal Reserve's first 50 bps rate cut at the September meeting. Sentiment remains well below the pre-pandemic average of 65 between 2015-2019. Elsewhere, February’s Architecture Billings Index—which leads construction spending by roughly half a year– slipped -0.1%, to a soft 45.5%. And Architecture Inquiries, which tend to lead billings, sank -3.6%, to 47.8%, a cycle low, with the American Institute of Architects noting that “Uncertainty surrounding the impact of recently announced tariffs may lead to a rise in building material prices in the coming months, while immigration policy may put even more pressure on an already undersupplied construction labor market.” 
• Uncertain Regional Manufacturers NY’s Empire Manufacturing Index plummeted 26% to -20%. Prices paid surged to 44.9%, likely in response to the rising trade war. Expectations fell sharply consistent with the highest economic policy uncertainty on record (ex-Covid). Meanwhile, the Philadelphia Fed manufacturing survey's general business conditions index fell from 18.1 to 12.5 in March, a little better than consensus expected (9.0). The number of employees index rose 5.3 points to 19.7, its highest level since October 2022. ISM-adjusted, both NY (48.7) and Philly (50.5) are toggling around the 50-level denoting expansion.

What Else

Not bad odds Deutsche Bank notes there have been 59 S&P 500 corrections since 1928 (the current one is #60). Of these, 17 (28.8%) turned into bear markets, while 42 (71.2%) stalled out between -10% and -20% from the highs. Interestingly, 10 (16.9%) never deteriorated beyond -10.5%. Historically, when a correction started, 12% of the time a recession had already begun, 32% of the time one was coming within the next 12 months, and 56% of the time no recession started within a year of the correction’s start.

“I’m my own favorite president,” but Andrew Jackson is #2, says Trump. Based on election results, both believed they had a mandate for their agendas and never wavered—Jackson to kill the Second Bank of the US, Trump to raise tariffs. Both were household names before ever running and had devoted followers. Both felt they had an election stolen from them, had personalities the establishment considered dangerous, were reviled by their political opponents, and miraculously survived assassination attempts. Jeffries reports that 44% of CEOs surveyed at a Yale event said the stock market would need to fall 20% before publicly criticizing Trump’s policies. 

March Madness! But Vanna doesn’t need to gamble Jeffries notes an Iowa cornfield just over the Iowa/Nebraska border registered over 300k geological checks from Nebraskans placing sport bets. Online sports betting is illegal in Nebraska. Meanwhile, Wheel of Fortune game show host Vanna White revealed that she only works 34 days a year with a salary of $3m.