Market Focus: US Tariff Plans, PMI Resilience, and Earnings Revision

Market Recap: Cautious Optimism Amid Tariff and Economic Uncertainty

Wall Street experienced initial weakness in pre-market trading but managed to rebound, echoing a pattern observed earlier this week. With limited significant economic releases and earnings announcements expected over the coming days, the market remains relatively calm. However, attention is shifting toward the Conference Board’s Consumer Confidence Index, due at 3:00 PM CET, which could influence market sentiment.

A Financial Times report indicates that the White House is considering a more robust legal rationale for implementing tariffs. The proposed strategy suggests using tariffs not only as a bargaining tool in international negotiations but also as a means of generating revenue to fund potential tax cuts for US citizens. This approach aims to soften the economic fallout from tariffs while enhancing domestic economic resilience.

There is also speculation that tariffs on automobiles may be imposed as early as April 2. While Tesla’s stock continues its upward trajectory, the company’s performance in Europe remains disappointing. Sales figures for the first two months of the year are down by approximately 43% compared to the previous year, even as the broader European auto market shows healthy growth.

Economic Outlook: Key Indicators to Watch

Investors are preparing for the release of the March Consumer Confidence Index at 3:00 PM CET, with expectations of a decline from 98.3 in February to 94. If consumer sentiment remains relatively strong, it could alleviate recession concerns and bolster market confidence.

Simultaneously, data on February’s new home sales will be released, with projections pointing to 679,000 units. Spring is a critical period for the housing market, and recent results from Lennar and KB Home have underscored ongoing challenges in the sector. Lennar’s disappointing performance was followed by weaker-than-expected bookings from KB Home, raising concerns about future growth.

Federal Reserve and Treasury Actions: Policy Signals in Focus

The US Treasury is set to auction $69 billion in 2-year Treasury bonds today, with results expected by 6:00 PM CET. These results could impact government bond yields and broader market sentiment.

Additionally, two notable Federal Reserve officials will provide further insights into monetary policy today:

• John Williams, President of the New York Fed, is scheduled to speak at 2:00 PM CET.

• Raphael Bostic, President of the Atlanta Fed, reiterated yesterday that he anticipates only one more rate cut this year.

Fed officials have been sending mixed signals recently. While Bostic remains cautious about additional rate cuts, Austan Goolsbee warned that rising market expectations for long-term inflation may necessitate a more aggressive monetary stance.

S&P 500 Outlook: Navigating Tariff Uncertainty

Barclays has revised its year-end target for the S&P 500, lowering it from 6,600 to 5,900 points due to the increasing uncertainty surrounding US tariff policies. This adjustment marks the most pessimistic outlook for 2025 among major Wall Street forecasts.

With reciprocal tariffs targeting China, the EU, Canada, and Mexico set to be announced on April 2, market sentiment remains cautious. Data and surveys indicate growing uncertainty about the US economic outlook, as tariffs could weaken corporate earnings and slow economic growth.

Potential Scenarios:

• Upside Scenario:If the Trump administration scales back tariffs in response to industry pressure, easing economic headwinds, the S&P 500 could climb to 6,700 points. Barclays assigns a 25% probability to this outcome.

• Downside Scenario:Conversely, if tariffs remain in place and reciprocal tariffs are imposed, a recession may ensue, with corporate earnings facing sharper declines. This scenario could push the S&P 500 down to 4,400 points, though Barclays assigns only a 15% probability to this outcome.

Despite the uncertainties, Barclays analysts continue to favour the healthcare and Big Tech sectors as more resilient areas of the market.

Earnings Review: Mixed Results Across Key Sectors

International Paper:

• Lowered its 2025 outlook due to weaker demand.

• However, synergies from the merger with DS Smith are expected to drive EBITDA beyond target levels.

• Management remains optimistic about achieving stronger performance by 2027.

McCormick:

• Earnings missed expectations, but revenue met projections.

• Increased tariffs on Chinese imports have led to a downward revision of both earnings and revenue targets for fiscal year 2025.

KB Home:

• Earnings, revenue, and margins all came in below expectations.

• Weak booking trends have prompted a downward revision of the outlook for the current fiscal year.

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