The Markets

A difference of opinion.

Broadly speaking, there are two types of investors: individual investors and institutional investors.

Individual investors buy and sell investments to grow their personal wealth. This group of investors often works with financial advisors as they pursue their financial goals. Individual investors tend to invest smaller amounts of money than institutional investors do.

For the last three weeks, sentiment among individual investors has been leaning bearish. Last week, 40.5 percent of investors in the AAII Investor Sentiment Survey were feeling pessimistic about the direction of stocks over the next six months. That was an improvement from the prior week’s reading when 47.3 percent of participants were bearish. Here’s what the survey has found since the week of January 20.

The AAII Investor Sentiment Survey is considered a contrarian indicator, meaning that people look at the survey to identify potential turning points in the market. In some instances, when investors have been pessimistic, the market has moved higher, and vice versa, reported Edward Harrison of Bloomberg.

Institutional investors are very large investors, such as banks, mutual funds, exchange traded funds, college endowments, state pensions, insurance companies, and other organizations that buy and sell investments, usually in very large volumes, to meet the goals of the group for whom they’re investing.

Currently, institutional investors are quite bullish. According to survey results released last week by Bank of America (BofA), many institutional investors are fully invested and holding very little cash. “Global stocks have become the most popular asset class with [institutional] investors, who are showing the biggest willingness to take risk in 15 years,” reported Sagarika Jaisinghani of Bloomberg. “About 89 [percent] of respondents in the BofA survey said US equities were overvalued, the most since at least April 2001. The faith in so-called U.S. exceptionalism — where investors bet mainly on American financial markets — has also faltered as investors rotate into European stocks.”

Last week, major U.S. stock indices moved lower on discouraging economic data and inflation concerns, reported Connor Smith of Barron’s. The yield on the benchmark 10-year U.S. Treasury moved lower over the week.

LET’S TALK ABOUT THE WEATHER. Last week, many parts of the United States set new records for low temperatures as an arctic blast swept across the country. Antelope Creek, North Dakota, saw 45 degrees below zero, which made the low in Austin, Texas (29 degrees) seem downright balmy. In many areas, schools closed – not because of snow, but because of the bitter cold. Meanwhile, up in Alaska, the Iditarod dog sled race moved north from Anchorage to Fairbanks due to a lack of snow and too-warm temperatures.

See what you know about historical weather events in the United States by taking this brief quiz:

1. What was the coldest temperature ever recorded in the United States?
   1. 80 degrees below zero in Prospect Creek, Alaska
   2. 70 degrees below zero in Rogers Pass, Montana
   3. 60 degrees below zero in Tower, Minnesota
   4. 45 degrees below zero in Minot, North Dakota
2. In 1974, the U.S. experienced the Super Tornado Outbreak. During the outbreak, two F5 tornadoes struck Tanner, Alabama, in the same 24-hour period. How many tornadoes occurred across the United States during the Outbreak?
   1. 47 across 7 states
   2. 98 across 25 states
   3. 148 across 13 states
   4. 247 across 21 states
3. In the early 1900s, steady rain caused a major river in the U.S. to overflow its banks. The floodwaters spread across 16 million acres in seven states. It “temporarily created a shallow sea over 75 miles wide and forced thousands to be evacuated by boat,” reported Evan Andrews of History.com. What is the name of the river that flooded?
   1. Ohio River
   2. Mississippi River
   3. Colorado River
   4. Platte River
4. In 2011, a massive dust storm encompassed Phoenix, Arizona. The 6,000-foot-high wall of dust stretched more than 100 miles long and traveled 150 miles, reported Gabe Trujillo of Channel 12 News. What are these enormous dust storms called?
   1. Derechos
   2. Lizard stranglers
   3. Haboobs
   4. Drouths

By the end of last week, temperatures were warming up. In some places, temperature swings of 90 degrees or more were anticipated. That’s sure to inspire thoughts of spring blooming!

Weekly Focus – Think About It
“The beautiful spring came; and when Nature resumes her loveliness, the human soul is apt to revive also.”
 – Harriet Ann Jacobs, Author

Answers: 1) a; 2) c; 3) b; 4) c

Sources:

https://www.aaii.com/sentimentsurvey or go to https://resources.carsongroup.com/hubfs/WMC-Source/2025/02-24-25-AAII%20Sentiment%20Survey_1.pdf

https://www.aaii.com/sentimentsurvey/sent_results

https://www.bloomberg.com/news/newsletters/2025-02-19/are-retail-investors-too-bearish-probably-not?srnd=undefined or go to https://resources.carsongroup.com/hubfs/WMC-Source/2025/02-24-25-Investors%20Too%20Bearish_3.pdf

https://www.bloomberg.com/news/articles/2025-02-18/investors-are-the-most-risk-on-in-15-years-bofa-survey-shows or go to https://resources.carsongroup.com/hubfs/WMC-Source/2025/02-24-25-BofA%20Survey%20Shows_4.pdf

https://www.barrons.com/livecoverage/stock-market-today-022125?mod=hp_LEDE_C_1  or go to https://resources.carsongroup.com/hubfs/WMC-Source/2025/02-24-25-Barrons-Stock%20Market%20News_5.pdf

https://www.barrons.com/market-data

https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve&field_tdr_date_value_month=202502

https://weather.com/forecast/regional/news/2025-02-16-arctic-blast-temperature-record-week-ahead

https://www.accuweather.com/en/winter-weather/iditarod-forced-to-move-again-due-to-lack-of-alaska-snow/1746306

https://weather.com/safety/winter/news/2024-01-12-record-coldest-temperatures-in-united-states#

https://www.weather.gov/dlh/January21_FrigidMorningLowTemperatures#

https://www.waaytv.com/news/alabama/remembering-the-deadly-impact-of-the-1974-tornado-super-outbreak-in-north-alabama/article_e2fae1e8-f116-11ee-9158-2f139a26c420.html#

https://www.history.com/news/worlds-most-catastrophic-floods-in-photos

https://www.12news.com/article/weather/dust-storm-haboob-rolled-through-phoenix-on-july-5-2011/75-f48e08d6-d33f-4992-b40f-c9b6bdc17bd3

https://www.foxweather.com/weather-news/winter-warmup-weather-whiplash-us

https://www.goodhousekeeping.com/life/g3372/spring-quotes/

The Markets

Why are stock markets wary of tariffs?

In two of the last three weeks, tariff announcements led to late week stock market sell-offs. Stocks quickly recovered lost value, but uncertainty about the administration’s trade policy and the potential impact of that policy on U.S. companies remained. That’s likely to be the case until it becomes clear whether the Trump administration sees tariffs as a negotiating tactic or a means to cover the cost of extending 2017 tax cuts.

If tariffs are a negotiating tactic and unlikely to be implemented, the effect on the U.S. economy, businesses, and stocks may be less significant than if tariffs are put in place. The Tax Foundation evaluated the administration’s proposal for a universal baseline tariff and reported, “the 10 percent tariff would generate $2 trillion of increased revenue, while the 20 percent tariff would generate $3.3 trillion over a decade.”

While increased tax revenue is alluring, the catch is that tariffs are taxes added to the prices of materials and goods purchased by American businesses. Often, the cost is passed on to consumers, reported Anshu Siripurapu and Noah Berman of the Council on Foreign Relations (CFR). As a result, the trillions of dollars that could be generated would come from American pockets. According to CFR estimates:

“A 25 percent tariff on Canada and Mexico will raise production costs for U.S. automakers, adding up to $3,000 to the price of some of the roughly sixteen million cars sold in the United States each year. Grocery costs could rise, too, as Mexico is the United States’ biggest source of fresh produce, supplying more than 60 percent of U.S. vegetable imports and nearly half of all fruit and nut imports.”

Higher prices may reduce demand for goods and services, slowing sales and reducing companies’ profits (and earnings). If earnings growth slows, publicly traded companies’ stock prices could be affected. David Kostin, chief U.S. equity strategist at Goldman Sachs Research reported, “...every five-percentage-point increase in the U.S. tariff rate is estimated to reduce [Standard & Poor’s 500 Index] earnings per share by roughly 1-2 [percent].” Goldman’s estimates suggest the 10 percent tariff placed on China in early February could raise the effective U.S. tariff rate by about 4.7 percentage points.

In addition, businesses may be vulnerable to retaliatory tariffs imposed by other nations. For example, “American farmers and ranchers incurred the most widespread damage from this retaliation following the 2018 tariffs. The damage was so great that the [first] Trump administration authorized $61 billion in emergency relief payments to cushion farmers and ranchers from the blow…an amount roughly equivalent to all of the tariff revenue collected from U.S. businesses,” reported Adam S. Hersh and Josh Bivens of The Economic Policy Institute.

Investors appeared to shrug off concerns about tariffs and trade wars last week. Denitsa Tsekova of Bloomberg reported, “This week’s vow for reciprocal tariffs comes not long after [President Trump] delayed threats against Canada and Mexico, signaling to many investors that he won’t take action that enacts lasting damage to Wall Street.”

Last week, higher than expected inflation numbers and weaker than expected retail sales data gave investors pause, but major U.S. stock indices finished the week higher. The yield on the benchmark 10-year U.S. Treasury moved lower over the week.

WHAT DO YOU KNOW ABOUT BUYING A HOUSE? First-time home buyers have a lot to think about. A house is a big investment, so it’s important to do the research and develop some checklists that can help you compare and evaluate the options available to you. One checklist might include key points to observe during home showings. For example, did you know it’s a good idea to begin your home tour in the basement (assuming the house has one)? If you find issues that significantly affect the structure’s integrity, end the tour there.

Here are a few things to consider:

• The inspection. Many people have been told that requiring an inspection may mean they won’t get the house. But waiving an inspection can be costly, especially if the home has significant problems. One option “is to include a home inspection ‘for informational purposes’ in your contract. This means that you won’t hold home sellers responsible for making repairs or fronting the money for them—and could make sellers more likely to accept your offer,” reported Kelsey Ogletree of Realtor.com. If the home has serious issues, you can back away from the sale although your earnest money may be at risk.
• The neighborhood. You can learn a lot about prospective neighborhoods online, but it’s a good idea to spend time there, too. Drive through the community. Take walks through the neighborhood at different times of the day and different days of the week. Chat with people you see. The more information you gather, the more confident you will be about your decision.
• Your actual monthly costs. After buying a home, the amount you owe each month is usually several hundred dollars more than your mortgage expense. That’s because the payment to your lender will include property taxes and homeowner’s insurance costs that are held in escrow and, usually, paid by the lender when due.

When you’re ready to buy a home, leverage your resources—including online research and friends and family members—and gather the information you need to feel confident that you’re making a sound decision.

Weekly Focus – Think About It
“In love of home, the love of country has its rise.”
—Charles Dickens, novelist

Sources:

https://abcnews.go.com/538/americans-trumps-tariffs/story?id=118796434

https://taxfoundation.org/blog/trump-tariffs-revenue-estimates/

https://www.cfr.org/backgrounder/what-are-tariffs

https://www.cfr.org/article/what-trumps-trade-war-would-mean-nine-charts

https://www.goldmansachs.com/insights/articles/how-tariffs-are-forecast-to-affect-us-stocks

https://www.epi.org/publication/tariffs-everything-you-need-to-know-but-were-afraid-to-ask/

https://www.bloomberg.com/news/articles/2025-02-14/fearless-wall-street-traders-refuse-to-panic-as-trade-war-flares (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2025/02-17-25_Bloomberg_Fearless%20Wall%20Street%20Traders%20Refuse%20to%20Panic_7.pdf)

https://www.barrons.com/market-data?mod=BOL_TOPNAV (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2025/02-17-25_Barrons_Data_8.pdf)

https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve&field_tdr_date_value_month=202502

https://www.groundworks.com/resources/common-basement-problems-to-deal-with-when-owning-a-home/

https://www.realtor.com/advice/buy/should-i-waive-a-home-inspection/

https://www.realtor.com/advice/buy/bad-neighborhood-red-flags-when-buying-a-home/

https://www.consumerfinance.gov/ask-cfpb/what-costs-come-with-taking-out-a-mortgage-en-153/

https://www.today.com/life/inspiration/quotes-about-home-rcna81557