Quick Recap

The team discussed the current market environment, including the impact of tariffs on the economy and the potential for a consumer bounce in April and May. They also explored the potential effects of tariffs on domestic parts and the goal of producing in America, as well as the potential for European equities to outperform due to a shift in fiscal spending. Lastly, they discussed the importance of maintaining a diversified approach in the investment models.

Tariffs Impact on Economy and Fed

Lee discussed the current market environment and the impact of tariffs on the economy as potentially inflationary, highlighting the Fed has implied the same in their latest projections. But he also pointed out mixed data coming in, such as last week’s 2.4% GDP growth report for 4th quarter 2024 which showed a fairly healthy economy just a few short months ago to end 2024. Yet, consumer confidence has declined substantially since the beginning of the year.

Speaking of sentiment, Lee talked about how a recent set of S&P Global sentiment reports showed a mixed message. Which is again adding to uncertainty. The Investment Manager Index Survey released on March 11 was negative, yet the Global Business Outlook Survey, taken from approximately 8,000 manufactures and service providers and released the day after, was positive. This divergence in sentiment is a good example of the mixed messages people are sensing on future expectations for our economy. In other words, uncertainty. He emphasized that is probably why the Fed decided to hold rates steady. But he also pointed out that the Fed did take their foot off the gas pedal on their balance sheet. By slowing down the pace of selling treasuries off which they do by reducing the monthly cap on how many treasuries it allows to mature and not be replaced (otherwise known as “quantitative tightening” – see our 3/24 note for more info on that). This should provide some relief to the economy by freeing up borrowing. David also added that when the Fed decides to buy fewer treasuries (or sell them off) it reduces demand for treasuries which causes bond yields (and borrowing costs) to go up. But in this case, the Fed has decided to slow that process down so, in theory, bond yields should at least remain steady or possibly subside.

Economic Signs - Manufacturing and Consumer Sentiment

Lee continued to discuss the current economic situation, highlighting the Flash PMIs for manufacturing and services in the month of March that came out on March 24. That survey is taken from 650 manufacturers and 500 service providers, and it showed a decline in manufacturing from February. BUT there was positive feedback on the future outlook for manufacturing, where it showed that sentiment for manufacturing remained the highest seen in the past three years. So that appears to be a good sign.

On the services side, that bounced after being down in January and February. Lee suggested that cold weather may have played a part in that and if that’s the case, we may see a continued bounce in April/May. Lee emphasized it’s too early to tell, but advised the next report on retail sales set to come out on April 16 will shed more light. In the meantime, Lee stressed the importance of remaining cautious and continuing to focus on diversification.

S&P Global Flash PMIs

Tariffs and Foreign Parts Impact Car Prices

The group discussed the impact of tariffs and rising costs on car prices and manufacturing. Lee noted that businesses are expecting to pass on higher costs to consumers, primarily due to tariffs and increased non-staff costs (see the S&P Business Outlook Report). David pointed out that car dealers, as independent businesses, are raising prices both in anticipation of tariffs and because of increased demand (as a way to front run the expected price increases). The conversation then turned to the origin of car parts, with David mentioning that even American car manufacturers use a significant percentage of foreign-made parts. Lee added that there's probably no car in the world without any foreign components.

European Equities and Defense Manufacturers

The group also discussed the potential for European equities to outperform due to a shift in fiscal spending as Europe continues to see a decline in fiscal support from the United States. David suggested focusing on European defense manufacturers as countries increase their military budgets. Lee proposed considering a European defense sector ETF or a European equivalent of certain US defense company stocks.

Earnings Insight

Lee shared current research from Factset Earnings Insight which highlights industry analysts are projecting a 21% increase in the S&P 500 over the next 12 months. The report also suggests 12% earnings growth for calendar year 2025 and 14% in 2026. The group continues to feel these projections are overly optimistic given current trading levels. Lee continued the discussion by pointing out a different story on the S&P Investment Managers Index which only projects a 2% rise in the S&P 500. He also showed information from a recent luncheon he attended in King of Prussia, PA where earnings projections were also discussed. General consensus from the presenting firm indicated a similar cautious outlook in that the market seems to be priced for perfection and any hiccup would cause future earnings projections to falter. Lee also pointed out that he noticed the 2025 earnings projection published by Yardeni Research came down in recent days from 285 to 260. This, the group felt, was something to monitor closely. But at the same time, it is a sign to continue to stay focused on defense, quality and diversification.

Next Steps

• Lee to research European defense manufacturers or ETFs focused on the European defense sector.
• Lee to follow up with Yardeni Research regarding their updated earnings projections.

Looking Ahead

Looking ahead to the next few weeks and months, the group concluded that should expect continued volatility until we get more clarity on trade policy. In the meantime, we will stay vigilant with a defensive and cautious approach.

As always, we encourage open dialogue regarding your portfolio and financial goals. Should you have any questions or wish to discuss recent market developments in more detail, please don’t hesitate to reach out.

Thank you!

Sincerely,

Lee

Lee R. Johnson, Jr., CFA, MBA
Chief Investment Officer
Professional Planning Associates, Inc.

190 North Independence Mall West, Suite 602
Philadelphia, PA 19106

www.proplanners.org

Founder and Owner
Valor Asset Management^TM

_Disclosures:

_{Investment adviser representative offering securities and advisory services offered through Cetera Advisors LLC, a broker dealer and a Registered Investment Adviser. Member FINRA/SIPC. Cetera is under separate ownership from any other named entity.}

_{Professional Planning Associates is a separate entity from Cetera Advisors.}

_{Valor Asset Management is a separate entity from Cetera Advisors.}

_{Past performance does not guarantee future results.}

_{The views stated in this note are not necessarily the opinion of Cetera Advisors LLC and are not intended to provide specific advice or recommendations for any individual, product or strategy, or as an offer to buy or sell any securities mentioned herein. The content is for general information only and is subject to change. It contains the current research and opinions of the investment team and is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed.}

_{The S&P Global Flash US PMI^® is compiled by S&P Global from responses to questionnaires sent to survey panels of around 650 manufacturers and 500 service providers. The panels are each stratified by detailed sector and company workforce size, based on contributions to GDP. The services sector is defined as consumer (excluding retail), transport, information, communication, finance, insurance, real estate and business services.}

_{The S&P Global Business Outlook Survey for worldwide manufacturing and services is produced by S&P Global and is based on a survey of around 8,000 manufacturers and service providers that are asked to give their thoughts on future business conditions.}

_{The S&P Global Investment Manager Index survey includes monthly responses from a panel of just under 300 participants employed by firms that collectively represent approximately $3,500 on in assets under management. Data was collected between 3-6 March 2025.}

_{The S&P 500 Index is a market capitalization-weighted index established by S&P Global ratings. It is composed of the 500 most widely held stocks whose assets and/or revenues are based in the US; it's often used as a proxy for the U.S. stock market.}

_{A diversified portfolio does not assure a profit or protect against loss in a declining market.}

_{Rebalancing may be a taxable event. Before you take any specific action, be sure to consult with your tax professional.}

_{The return and principal value of bonds fluctuate with changes in market conditions. If bonds are not held to maturity, they may be worth more or less than their original value.}

_{International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.}

_{Inflation is the rate of increase in prices over time across the general level of goods and services in an economy, leading to a decrease in the purchasing power of money.}

_{Gross Domestic Product (GDP) is the total monetary value of all finished goods and services produced within a country's borders during a specific period, typically a year.}

_{Economic growth refers to an increase in the size of a country's economy over a period of time. The size of an economy is typically measured by the total production of goods and services in the economy, i.e. the Gross Domestic Product (GDP).}

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