Are Recession Fears Misplaced?

Markets continue to trade on tariff news, but markets stopped making new lows last week.

On March 4th, new lows on the New York Stock Exchange hit a 2-year high. Last week, new lows receded to a level not seen in over a month. So much fear in the market has revolved around tariffs and, most recently, a possible link between inflation and tariffs. That narrative suffered a blow last week as both CPI & PPI came in lower than expected. Producer Prices were basically flat in February and Consumer Prices edged higher less than anticipated.

The Cleveland Fed has projected March inflation to come in flat, which would push the year-over-year number lower for a 2nd consecutive month.

A data point that has been often quoted in the press of late is the price of eggs. According to the U.S. Department of Agriculture, the price of eggs has dropped from a high of just over $8 per dozen to just over $4 per dozen in a few short weeks. Mortgage rates are on the decline, along with Treasury rates. These challenges that have hampered consumers for the past few years appear to be subsiding for the time being.

The Labor Market appears to be holding steady as openings and jobless claims are not showing recessionary signals as of yet.

Job Openings have stabilized after dropping from all-time-highs post-COVID. In fact, the current level of Job Openings is holding at the same level measured in March of 2019. Initial Jobless Claims and Continuing Claims are not near levels typically seen just prior to past recessions.

Volatility might also be showing signs of peaking here in the short-term.

The VIX Index briefly traded near the December highs, but pulled back by the end of last week. We have yet to see the August highs of last year for the VIX, which supports the view that this is a correction and not something deeper. Finally, since 1950, we have not seen three bear markets within a 5-year time period. While it's not impossible, it would be extremely rare to see another bear market in 2025 to coincide with 2020 and 2022. According to Fed Chairman Powell on tariffs, "The textbook would say look through it." Investors should probably heed that advice.

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