- Despite recent market volatility from inflation concerns and tariff uncertainty, diversification continues to provide benefits. Last week real assets led the way and are now also leading performance both year-to-date and over the trailing 12 months.
- This week's "Liberation Day" tariff implementation and key employment reports could mark a pivotal turning point for markets, potentially providing clarity while influencing Federal Reserve policy decisions.
- Could the first quarter be the beginning of a "New Bull Market in Diversification" as globally diversified portfolios showed remarkable resilience? Balanced portfolios are poised to see positive quarterly returns despite the U.S. stock market challenges.
Market Review
Equity and fixed income markets faced headwinds last week as tariff concerns, higher-than-expected inflation data, and declining consumer sentiment weighed on investor psychology. While both stocks and bonds retreated, real assets demonstrated their diversification value, posting gains during this volatile period. Crude oil prices climbed 2%, marking their third consecutive weekly increase. This performance reinforces the trend we have observed throughout 2025, with diversification providing value to balanced portfolios including real assets leading performance both year-to-date and over the trailing 12-month period.
Economic Review: Consumer Sentiment Deteriorates
The Federal Reserve's preferred inflation metric, Core Personal Consumption Expenditures (PCE), came in at 2.8% year-over-year for February, slightly exceeding economist forecasts. This core reading, which excludes volatile food and energy components, provides a clearer picture of underlying inflation trends. Consumer spending also showed weaker-than-anticipated growth, potentially signaling caution among households.
Consumer sentiment deteriorated significantly, dropping 12% in March according to the University of Michigan's Survey of Consumers—the third consecutive monthly decline and the lowest reading since 2022. Inflation expectations were their worst in over 30 years. Respondents expressed mounting concerns about inflation, economic policy direction, and income prospects, with two-thirds anticipating rising unemployment in the coming year. By the week’s end, it is now expected that the first quarter GDP will be -2.8%.
Corporate Earnings Outlook
Despite growing economic uncertainty and some downward revisions to earnings forecasts, corporate profit expectations remain constructive entering the first quarter earnings season which begins in earnest on April 11th. Analysts still project 10-11% year-over-year earnings growth for 2025, which represents above-average growth and continues to provide fundamental support for equity valuations.
This Week's Outlook: “Liberation Day”
Markets face a pivotal week on both geopolitical and economic fronts. Wednesday's "Liberation Day" looms large as the administration prepares to implement significant tariffs as part of its "America First" agenda. This event could potentially mark a positive inflection point by providing much-needed clarity to "tarrified" investors. However, international responses in the days and weeks ahead will likely sustain a degree of market anxiety.
Employment Data in Focus
On the economic calendar, labor market data takes center stage with the JOLTS report early in the week and Friday's comprehensive employment figures. This Friday’s non-farm payrolls report for March is still expected to show 135k new jobs and the unemployment rate staying at 4.1%. While labor conditions have softened marginally, unemployment remains near multi-decade lows—a sign of underlying economic resilience. Disappointing reports, however, could intensify the current "growth scare" while simultaneously increasing the probability of earlier and deeper Federal Reserve rate cuts. Chair Powell's Friday remarks will carry particular significance given the week's developments.
Big Thought: New Bull Market in Diversification
As we close the first quarter, globally diversified portfolios have demonstrated remarkable resilience. Despite challenges in the broad U.S. stock market, many balanced portfolios are poised to deliver positive quarterly returns. While global equities enter the quarter's final day with modest losses for the quarter, core fixed income, and diversifying asset classes such as global credit, alternatives, and real assets have all generated gains.
All major asset classes maintain positive returns over the trailing 12-month period, with international equities and commodities leading performance. Small-cap stocks stand as the notable exception, posting losses both year-to-date and over recent months. Their underperformance reflects the challenging environment created by concerns over slowing economic growth combined with persistently high short-term interest rates.
Closing Thoughts
Investors maintaining properly diversified portfolios should find satisfaction in their first-quarter results—a powerful reminder that diversification remains one of the most effective risk management tools available to long-term investors. Staying invested, staying diversified, and staying disciplined should continue helping investors pursue their goals of financial success.
if you have any questions, please don’t hesitate to reach out to us at strategists@brinkercapital.com or at rusty@orion.com. Thank you for your time and trust.