Wentz Weekly: “Detox Period”

Wentz Weekly Insights
A “Detox Period” For the Economy

Markets have experienced heightened volatility as of late, something we haven’t seen since September. We are closely following the situation in the markets. We believe markets/investors have been waiting for a reason to take profits, and with recent headlines on trade it was given a reason to do so. In addition, we have seen headlines that companies are giving disappointing outlooks for 2025 over the past several weeks. We attribute this to management teams at companies being more cautious and providing more conservative outlooks given higher uncertainty. We will continue to monitor the situation and how all the above impacts the markets.

Stocks continued their selloff last week, seeing the worst performance since September. Financials were the worst performing sector with a 6% decline, followed by growth sectors like consumer discretionary and technology. The Nasdaq briefly touched correction territory, which is defined as a 10% decline from highs. The only positive sector was health care, which was the worst performing sector of 2024, squeezing out a 0.20%.

We attribute the recent decline to a number of factors including concerns around a trade war and how that may lead to lower growth along with more cautious company guidance.

Earnings season unofficially ended last week with more retailers and several technology companies reporting quarterly results. Earnings season ended much worse than how it started. Last week saw big declines in several companies after the release of financial results with some providing guidance; Marvell shares fell over 20% as its outlook was only in line with estimates while CrowdStrike shares fell over 15% on a lower margin and earnings outlook, and retailers like Target, Best Buy, Costco, Abercrombie & Fitch, and Macy’s all fell after their earnings. Earnings growth for 2025 now stands at around 10%, lower than the 13% expected when earnings season began about 7 weeks ago.

Of course the biggest headline were regarding tariffs again. The concern has been twofold – a global trade war will lead to higher prices and slow economic growth. There have been more talks about a possible stagflation period, which is one of the worst economic outcomes where the economy sees slow or no growth with higher than normal inflation.

We experienced this in Trump’s first administration when we saw a trade war with China which ultimately ended with better trade terms for the U.S. However that was met with heightened volatility throughout the year and led to a brief pullback in stocks. We are experiencing this again and expect a similar outcome.

There was also comments from Treasury Secretary Scott Bessent and Trump that led to more worries. Bessent described an anticipated slowdown as a “detox period” for the economy because the economy has been “addicted to government spending,” and we will see a shift from public to private spending which will create a more sustainable equilibrium. Trump made somewhat similar comments, adding that the economy will go through a period of transition.

The fixed income markets are indicating to us there is still little worries on the economy. The Treasury market saw little move last week – the 2-year Treasury yield was unchanged for the week at 4.00% while the 10-year yield rose 8 basis points to 4.30%.

This week we are expected to see an update on the Ukraine situation with Ukraine officials expected to meet with US officials in Saudia Arabia in hopes of resuming talks on a minerals deal that abruptly ended after Zelensky’s visit to the White House several days ago. This would be the first step in finding a ceasefire agreement between Ukraine and Russia. After talks ended last week, Russia stepped up its bombings in Ukraine and advanced its forces further into Ukraine territory.

We will also see an update on the inflation front with the release of the consumer price index that could be market moving. We expect continued volatility in the markets, but view it as an opportunity to rebalance portfolios rather than a reason to sell.

Recent Economic Data

• Employment Report: The DOL reported in February there were payroll gains of 151,000 which is a little below the midpoint of the consensus range of 130,000 to 300,000. Revisions have been significant over the past couple years, but not as large in this report – January job gains were revised down 18k to 125,000 while December gains were revised up 16k to 323,000. The average monthly payroll growth of the past 12 months is 162,250. Government hiring was still positive, but much less than the prior several years, with most job gains seen in education and health services, financial, transportation/warehousing, with declines in leisure & hospitality and professional services. The household survey had little positives. The number of individuals employed fell 588,000 in February, which is due mostly to a 385,000 decline in the labor force. The labor force participation rate fell to 62.4%, the lowest since late 2022. The number of people unemployed increased 203,000 to 7.052 million, which outside a couple months mid-2024 is the highest since the economy was recovering from the pandemic in 2021. This resulted in the unemployment to tick higher to 4.1%. Meanwhile, the underemployment rate, the U-6 rate that includes “marginally attached” workers and those working part time that want full time work saw a 0.5% jump to 8.0%, the highest since late 2021. The average wage increased 0.3% which was as expected. Wages are up 4.0% from a year ago, a bump higher from the 3.9% annual rate from last month.

• ADP Payrolls: ADP reported it saw 77,000 new payrolls in February, much lower than the 165,000 increase that was estimated and the slowest increase since July. The report noted “policy uncertainty and a slowdown in consumer spending might have led to layoffs or a slowdown in hiring.”

• Jobless Claims: The number of jobless claims the week ended March 1 was 221,000, a decline of 21,000 from the prior week with the four-week average relatively unchanged at 224,250. The number of continuing claims increased 42k to 1.897 million, with the four-week average up slightly to 1.866 million.

• PMI Manufacturing Index: The PMI manufacturing index was 52.7 for February, an improvement from the mid-month read, the highest since May 2022 and above the key level of 50 that indicates breakeven – over 50 reflects expanding activity, while under 50 indicates contracting activity. The report noted new orders, output, and employment all increased while costs and output prices increased at a greater degree, with some suppliers adjusting prices upward in direct response to tariffs.

• ISM Manufacturing Index: The ISM manufacturing index was 50.3 for February, a small drop from the 50.9 in January, suggesting a small increase in manufacturing activity in the month for the second straight month after 26 consecutive months of contracting, however the details were not nearly as good as the headline index number. Unlike the PMI, the respondents here noted a contraction in new orders, in fact it was the sharpest decline in new orders in 6 years (excluding the March and April 2020 from the pandemic). Production and employment and saw declines. A key theme among respondents was tariff concerns with price increases and delayed orders over uncertainty. The prices paid index rose to 62.4, the highest level since 2022.

• ISM Non-Manufacturing Index: The ISM Services index was 53.5 for February, slightly above the expectations and slightly above the level from January, indicating activity in the services sector expanded at a modest pace. Of the 18 industries in the services sector, 14 reported growth in the month. A not so welcoming sign was on the inflation front with the prices paid index at 62.6, the highest of any component in the report, continuing to come in elevated and pointing to continued inflationary pressures ahead.

• Construction Spending: After a strong run since the end of 2022, construction spending appears to have plateaued in recent months and declined 0.2% in January. Spending is still up 3.3% over the past year, but has slowed for 11 of the past 12 months. Spending fell 0.5% on residential projects and increased 0.1% on nonresidential projects. Residential spend has seen a 3.2% increase of the past year and a 3.4% increase for nonresidential.

• Trade Balance: The trade data for January is causing estimates for first quarter GDP to turn deep into negative territory and was by far the largest monthly deficit the U.S. has ever seen. The U.S. trade deficit swelled in January to $131.4 billion, much high than the $98.1 billion deficit from December, which was at the time the second highest monthly deficit ever. The ballooning deficit may be a result of U.S. companies trying to get ahead of potential tariffs. Exports increased 1.2%, or $3.3 billion, to $269.8 billion, while imports increased 10.0%, or $36.6 billion, to $401.2 billion.

• Mortgage Rates: The average prime 30-year mortgage rate saw its largest weekly decline in half a year after falling 13 basis points last week to an average of 6.63%. The average 30-year rate peaked at 7.04% mid-January, but still below the cycle peak of 7.73% in mid-2023 and about half a percent above the low of 6.08% in September.

Company News

• Taiwan Semi: Taiwan Semiconductor announced it will invest at least $100 billion in its U.S. manufacturing capabilities to bring the company’s total investment in the U.S. over the next couple of years to $165 billion. In a White House visit TSM CEO said the company would build three new chip manufacturing facilities, two packaging plants, and a R&D center.

• Intel: Reuters reported chip designers Nvidia and Broadcom are running manufacturing tests with Intel, demonstrating confidence in the company’s advanced production techniques and indicates the companies are moving closer to committing millions worth of manufacturing contracts to Intel. Intel’s manufacturing technique, referred to as the 18A process, competes with similar technology from Taiwan Semiconductor, by far the world’s largest chip manufacturer.

• Disney: The WSJ reported Disney is planning to reduce its workforce by 6% which would impact about 200 positions at the ABC News group in Disney Entertainment Networks as part of broader restructuring efforts. Its efforts include a bigger focus on its core businesses and more spending on sports and entertainment content.

• UnitedHealth: UnitedHealth is closer to winning its lawsuit where the Justice Department claimed the company overbilled Medicare by at least $2.1 billion. This comes after a legal expert that is overseeing the collection of evidence in the case gave a recommendation to a federal judge to dismiss the case over a lack of any evidence to support the claims.

• Walgreens: After months of speculation, Walgreens reached a deal to be acquired – Sycamore Partners said it has agreed to acquire Walgreens Boots for $11.45/share, or $23.7 billion, a 8% premium to where shares traded prior to the announcement. The release said shareholders may receive another $3 per share at some point from the proceeds from selling the company’s primary care assets including its VillageMD business.

• TikTok: Trump said if another delay is needed on the TikTok ban deadline then he will “probably get it extended.” He said there is still time before the April 5 deadline, and there is a lot of interest in TikTok currently. A Bloomberg report said it is not clear if Trump could legally offer a significant extension under the current law.

Other News:

• Tariffs:
  • Trump confirmed that 25% tariffs on imports from Mexico and Canada will be in full effect beginning March 4.
  • In response, Canada announced retaliatory actions, including 25% tariffs on $30 billion in US imports effective immediately, which will be followed by tariffs on an additional $125 billion in goods and services that will take effect in three weeks. Canada PM Trudeau said Canada “will not be backing down from our response tariffs until such a time as the unjustified American tariffs on Canadian goods are lifted there.”
  • Trump said he will double China tariffs to 20%. China quickly responded, retaliating with additional tariffs on US exports, including 10% and 15% tariffs on agricultural products including soybeans, beef, poultry, and gains, beginning March 10, as well as adding 10 additional firms to its unreliable entity list.
  • White House Press Secretary said Trump is granting a one month exemption on tariffs for automakers that comply with the U.S. Mexico Canada Agreement (USMCA) “so they are not at an economic disadvantage.” This comes after Trump held a phone call with the CEOs of the three largest automakers where they made the request. A separate Bloomberg report said the delay would give automakers additional time to move more investment and production to the U.S. to meet a major Trump demand.
  • Then, later in the week Trump said the U.S. will pause imposing tariffs on Mexico and Canada for another month, but this delay will only apply to good and services that are compliant under USMCA (United States-Mexico-Canada Agreement). A Bloomberg report noted around 50% of imports from the two countries fall under the USMCA.

• Ukraine Aid Freezes: Trump said he has paused U.S. military aid to Ukraine in effort to bring Zelensky to the negotiating table. To date, the U.S. has approved around $175 billion in aid and military support for Ukraine since Russia launched its invasion in 2022.

• Main Street Over Wall Street: Treasury Secretary Scott Bessent said Trump and the Administration are focused on the medium term and has more of a focus on main street versus wall street, saying “Wall Street’s done great, Wall Street can continue to do fine, but we have a focus on small business and consumers.”

• Government Funding Debate: Reuters said Trump is now involved with Republicans in the House in finding a continuing resolution to keep the government funded until September. House Speaker Johnson is pushing for a stopgap bill that would keep government agencies running at current spending levels until passing legislation on proposed spending cuts for next fiscal year. The government will run out of money and partially shut down next Friday if nothing is done.

• Lumber Prices Spike: Inflationary pressures from higher lumber prices are back with lumber futures at the highest price since August 2022 after Trump ordered an investigation into shipments. The investigation will look whether exporters are dumping lumber into the U.S. at the expense of American prosperity and national security, according to Bloomberg.

• China’s Growth Target: China’s Premier said in its annual work report to the National People’s Congress it has set an economic growth target of 5% for 2025 and a fiscal deficit target of 9.9% which would be its highest ever. It plans to achieve this growth by boosting consumption by focusing on benefiting lives as well as selling special bonds to fund spending on infrastructure and other areas. It also announced a shit in monetary policy from “prudent” to “moderately loose.” This may lead to reductions in reserve requirements and lower borrowing rates to support economic activity.

• 24 Hour Trading: Nasdaq said it is planning to introduce 24-hour trading on its US exchange by the second half of 2026, pending regulatory approval. Nasdaq President said it is making the move to meet growing demand from retail traders, but warned of the risks tied to elevated volatility and higher transaction costs during lower volume times.

• OPEC Oil Production Increases: OPEC said its crude oil production increased 240,000 barrels per day (bbl/day) last month to a daily average of 27.35 million barrels, the highest since December 2023. In addition, OPEC+ announced it will proceed with plans to revive halted oil production increases after many months of delays. This came amid pressure from Trump to lower oil prices. The group will increase oil production 138,000 bbl/day in April, the first in a series of monthly increases that will ultimately restore 2.2 million bbl/day by 2026. Oil fell 2% after the announcement

WFG News

Tax Documents

Please see this release to understand the timing on when to expect tax documents.