Key takeaways:
- Tariff uncertainty is spooking markets
- U.S. inflation slowed in February
- Investor sentiment is nearing oversold levels
On the latest edition of Market Week in Review, Director and Senior Investment Strategist Alex Cousley discussed recent developments in the trade war and the impact on markets. He also dug into the latest U.S. economic data and provided an update on investor sentiment.
Tariff whiplash
Cousley began by noting that market volatility intensified this week, with investors trading on each new tariff headline.
The week got off to a rocky start after U.S. President Donald Trump said he couldn’t rule out a recession sparked by the escalating trade war. This was later followed by the president noting that he doesn’t think a recession is likely. Following that, markets were repeatedly jolted by tariff announcements as the week progressed, Cousley said. These included the United States’ decision to raise tariffs on Chinese imports and implement a 25% tariff on all steel and aluminum goods from other countries.
China, the European Union (EU), and Canada all swiftly responded by slapping tariffs on U.S. imports, Cousley noted. “China retaliated by increasing tariffs on U.S. agricultural goods—similar to how it responded to U.S. tariffs in 2018-19. Meanwhile, the EU and Canada also struck back with retaliatory tariffs targeting a broad range of American goods,” he explained.
Cousley said that the current slate of tariffs could have a modest impact on U.S. economic growth, with one of Russell Investments’ models estimating a 0.4% hit to GDP (gross domestic product).
Encouraging economic numbers
Pivoting to economic data, Cousley said the latest JOLTS (Job Openings and Labor Turnover Survey) report provided some encouraging news. “The report showed that U.S. job openings ticked up during January, while the so-called quit rate—the percentage of individuals who voluntarily left their jobs—also edged higher. These are both healthy signs for the economy,” he remarked.
Meanwhile, U.S. inflation slowed to 0.2% during February—coming in slightly below consensus expectations. Cousley said that price changes in rent, autos, insurance, and airfare were key drivers behind the softer numbers. “While these sectors don’t have much of an impact on the U.S. Federal Reserve’s (Fed) preferred measure of inflation—the core PCE price index—this is an encouraging trend nonetheless,” he remarked. Cousley added that the numbers could also help strengthen the case for additional rate cuts in the second half of the year.
Souring sentiment
Cousley finished with a look at how market volatility is impacting investor attitudes. He said that Russell Investments’ proprietary measure of investor sentiment is showing further signs of reaching oversold levels. In addition, the latest Investors Intelligence survey—which tracks the sentiment of investment newsletter writers—showed there are more writers with a bearish market view than writers with a bullish one. “This is a relatively rare phenomenon,” Cousley noted.
He said that Russell Investments is paying close attention to changes in investor sentiment as well as the business cycle outlook. “We’re monitoring both for opportunities to incrementally add risk to our portfolios following the recent selloff, but we don’t think the market has crossed that threshold yet,” Cousley concluded.