INVESTMENT MANAGEMENT

First, the good news: the S&P tends to see a 10% correction about every 16 months, and with the last one having occurred in October 2023, we were almost right on schedule for this selloff to take place. And with the staggering strength of the recent bull market, the index is still up over +8% in the last twelve months after the recent correction.

The question is whether this correction endures to become a more serious selloff, which given continued bearish sentiment remains a possibility. With Trump’s seeming willingness to endure short-term pain in order to enact his trade goals, we can’t rule this possibility out, so we downgrade our Momentum Dial from Positive to Neutral.

While Trump’s stated tariff goal is to re-shore manufacturing for the benefit of domestic economic growth, these benefits will take time to materialize even if everything goes according to plan, and in the meantime we’re still seeing weakening manufacturing data in the US, with the manufacturing sector contracting in March according to the Institute of Supply Management.

Furthermore, the Atlanta Fed is now predicting that a drop in consumer spending will detract 0.4% from GDP in Q1, reflecting individuals’ reluctance to spend in times of uncertainty. On balance, our Fundamental Dial remains in a Negative position as growth concerns persist.

We’ve long said that equity markets were “priced for perfection”, and the current selloff is what you expect to see when expensive markets are confronted with far from perfect circumstances. The S&P still has concentration and valuation issues that would take more than a 10% correction to account for, and as such our Valuation Dial remains Negative.

Given the downshift in our Momentum Dial, we now have two dials sitting in a Negative position and now one dial at Neutral, which causes us to get more defensive in our recommended positioning. We continue to stress that having a long-term, data-driven plan results in the best risk-adjusted returns, and we will communicate any changes in our portfolio holdings to our clients in due course.