GLOBAL MARKETS – UH OH
The U.S stock markets finished the quarter on a weak note. The S&P 500 Index
fell 4.3% while the Dow Jones Industrial Average fell 0.9%. The NASDAQ
composite fell 10.3%, while the MSCI All Country World Index was flat. The
Bloomberg U.S. Aggregate Bond Index rose 2.9%. U.S. Treasury rates fell
broadly as the yield curve moved back to a partially inverted yield curve. The
ten-year Treasury yield at 4.2% was 37 basis points lower at quarter-end versus
the prior quarter while the two-year Treasury yield at 3.9% fell 36 basis points.
The three-month U.S.T bill at a yield of 4.3% is now 40 basis points higher than
the 10-year U.S. Treasury note. The spread between these two maturities has
reversed dramatically from last quarter, moving back to an inverted curve. This
curve flip from normalization has occurred with a recession in view and tariff
issues front and center. 2024 had been different with no recession yet an
inverted yield curve. But that is going to change in 2025. More signs abound
that the economy has slowed and will do so further in the months ahead. As
we stated last quarter, 2024 may well have been the tipping point for the
economy, 2025 is not looking good.
The Federal Reserve has kept interest rates unchanged so far in 2025. At the
end of 2024 the markets were looking for one maybe two additional
reductions in 2025. But now at the end of 1Q2025, that has changed. Rising
levels of inflation appear to have abated with a formerly stronger than
anticipated economy. The current levels of inflation are still higher than the
FOMC’s target of two percent. While we indicated last quarter that the two
percent inflation target was unlikely to be seen in 2025, recent days have
altered our thoughts. Just last quarter we didn’t believe significant tariffs, if
enacted against our trading partners would be deflationary. More on that if the
economy slows and demand subsides. Once serious consideration for the
FOMC; there is $8 trillion dollars of US government debt (a third of the
entirety) maturing over the course of the next 12 months.
As we stated last quarter, market volatility was indeed seen in the remaining
months of 2024 and is one of 2024’s legacies. However, it already appearsthat 2025 will be markedly more volatile. As noted previously we were very
concerned about a global equity correction of even more substance and more
longevity than occurred in 2024. We believed we had seen the end of the fixed
income market correction with U.S. Bonds being back in favor. U.S equity
valuations, particularly those that are specifically technology related, are still
elevated today. The US market started the quarter trading at 23x earnings
(forward), while some of the biggest US companies traded at double or triple
that. Paying forward for a decade of anticipated growth makes little sense to
us.
While fixed income rates have fallen this quarter, the interest rate spread
between investment and non-investment grade securities continues to trade
at historically narrow levels, not reflecting realities of the economy today or
for the balance of 2025. Again, as noted, last quarter we don’t expect the
strong dollar to continue in 2025.
Our continuing search for and investment in undervalued assets requires
patience and a healthy dose of optimism for humanity.
Important Information
The information provided is for educational and informational purposes only and does not constitute investment advice
and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does
not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. You
should consult your attorney or tax advisor. All information has been obtained from sources believed to be reliable, but its
accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness
of, nor liability for, decisions based on such information and it should not be relied on as such. The views expressed in this
commentary are subject to change based on market and other conditions. These documents may contain certain
statements that may be deemed forward looking statements. Please note that any such statements are not guarantees of
any future performance and actual results or developments may differ materially from those projected. Any projections,
market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual
events that will occur.
SeaCrest Investment Management, LLC (“SIM”) is a registered investment advisor. Advisory services are only offered to
clients or prospective clients where SIM and its representatives are properly licensed or exempt from licensure.
For additional information, please visit our website at www.seacrestim.com