S. Bessent is Not Worried about the Market Downturn...
- Marc Bentin
- Mar 23
- 7 min read
BentinPartner Weekly
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Marc Bentin,
Bentinpartner GmbH
US stocks stabilized last week, posting minor gains across the board with bond markets and the dollar also recovering slightly.
While economic data releases last week were mostly weaker, the Fed’s decision to leave rates unchanged but also to slash its QT program, essentially by half, while at the same time shrugging off as a possible outlier some of the recent inflationary pressure, to focus on the growth deterioration, was deemed to be the (mostly) dovish outcome that investors were looking and hoping for.
The Michigan 1 year forecast which was recently jacked up to 4.9% (from 2.7% last October), was considered as a possible outlier and J. Powell preferred during the press conference to focus on the growth deterioration. The Fed also revised lower both its GDP and unemployment forecast for 2025 to respectively 1.7% (from 2.1% in December) and 4.4% (from 4.3% previously).
This dovish FOMC outcome did not prevent D. Trump to yield against J. Powell, saying on his social media “The Fed would be MUCH better off CUTTING RATES as US tariffs start to transition their way into the economy!”.
If anything, this likely caused the market to selloff the following day as the preservation of Fed’s independence remains highly valued by investors but all in all, the week still ended on a positive note, sending bears (and short sellers in retreat), although credit markets weakened slightly with losses seen in the riskiest corner of the loan market.
Investors reportedly slashed holdings of US equities by the most on record according to BoA survey published last week with investors reporting they are 23% underweighted in US stocks, a plunge of 40% from the previous survey with record rotation out of US stocks suggesting a quick shift away from peak US exceptionalism. However, the results of this survey contradicted evidence that retail investors have been doubling down on the recent 10% correction, pumping more than 12bn into US equities in the week ending March 19th, according to JPMorgan data which showed with the pace of buying significantly higher than the group’s 12 months average.
Tech remained heavy until late last week with Meta becoming the last of the so called mag7 to show a loss for the year so far …until Friday’s bounce. Tesla recovered slightly in the latter part a week as well when vandalizing Tesla stores and cars erupted as E. Musk continued his government cost cutting and as litigation against these efforts intensified.
President Trump is expected to sign an executive order this week calling for the shutdown of the US education department, advancing a campaign promise to eliminate an agency that has long been the target of conservatives (the dismantling remains impossible without an act of Congress). Chief Justice J. Roberts also decried calls from the US President to impeach judges who have rules against his administration policies, including a judge who ruled against the deportation of hundreds of Venezuelans’ last week end.
US Treasury Secretary S. Bessent said he was not worried about the market downturn. ”I have been in the investment business for 35 years and I can tell you that corrections are healthy, they are normal”. “I am not worried about the markets. Over the long term, if we put the good tax policy in place, deregulation and energy security, the markets will do great”, he said.
On the US economic data side, the biggest disappointment came from retail sales last month, reviving concerns about a pullback in consumer spending as the previous month’ data were revised sharply lower, marking the biggest drop since July 2021 with weakness pronounced in motor vehicles sales. Gasolines, electronics and apparels were down with spending in restaurants and bars dropping most in a year.
Confidence among US home builders also declined, dragged down by concerns over tariffs as sales of new homes dropped to their lowest level since the end of 2023.
On the monetary policy side, while the BoE left interest rates unchanged last week, as did BoJ which cited worries over the potential impact of tariffs to not rush to hike for now, the SNB slashed rates by another 25bps (to 0.25%), the fifth consecutive decline, warning about economic risks that US tariffs could pose to the dynamism of the world economy and noting that "the economic outlook for Switzerland has become considerably more uncertain."
In Europe, German lawmakers passed a landmark spending package, in a major step to unlock hundreds of billions in debt financing for defense and infrastructure, heralding the end of an era of fiscal austerity in a vote that was approved 512/733, clearing the 2/3 majority required for changing constitutional borrowing rules. On top of military spending, it would include setting up a EUR500bn fund to invest in the country’s aging infrastructure.
Chancellor in waiting F Mertz said Germany’s move to unlock billions of euros in military spending should be seen as “a first great step” toward the creation of a broad European defense community including non-EU nations like the UK and Norway”, arguing it is necessary because the political order that brought freedom, peace and prosperity to Germany is under threat.
Elsewhere, China announced a plan to boost domestic consumption. The plan from the State Council will focus on raising income, stabilizing real estate and stock markets and improve medical and pension services though little details were provided.
While Chinese property prices dropped further (-0.1% MoM) in February, according to official data, Chinese consumption, investment and production exceeded estimates to start the year, pointing to signals of resilience of the Chinese economy. Corporate China also issued USD13bn in dollar denominated notes, so far this year, the highest since 2022 and double last year’s pace at the same time. China said it plans to add to its strategic reserves of key industrial metals this year with the plan including cobalt, copper, nickel and lithium, Bloomberg reported, likely supporting the strong copper performance (+27% ytd).
Political instability took central stage in Turkey leading to a 12% drop in the Turkish lira which led the central bank to rates 2% to 48%.
Canada is ready to talk about the two countries economic and security ties but not until the Trump administration ceases referring to its Northern neighbor as the 51st state, Canada’s Prime Minister Carney said.
In Geopolitics, the US launched a wave of air strikes against Houthis rebels in Yemen with the US President also warning Iran to halt support for the militant group immediately. Renewed conflict popped in Gaza.
Over the past week, the S&P500 gained 0,2% (-3,8% YTD) while the Nasdaq100 gained 0,2% (-5,9% YTD). The US small cap index gained 0,4% (-7,8% YTD). AAPL rallied 2,2% (-12,8%).
The Equally Weighed SP500 gained 0,7% (-0,8% YTD), outperforming the S&P500 by 0,5%. The median SP500 YTD return closed the week at -1,5%.
Cboe Volatility Index sold off by -11,4% (11,1% YTD) to 19,28.
The Eurostoxx50 gained 0,4% (10,9%), outperforming the S&P500 by 0,2%.
Diversified EM equities (VWO) dropped -0,2% (4,4%), underperforming the S&P500 by-0,4%.
The Dollar DXY Index (UUP) measuring the USD performance vs. other G7 currencies gained 0,4% (-3,1%) while the MSCI EM currency index (measuring the performance of EM currencies vs. the USD) gained 0,1% (1,8%).
10Y US Treasuries rallied -7bps (-32bps) to 4,25%. 10Y Bunds dropped -11bps (40bps) to 2,77%. 10Y Italian BTPs rallied -12bps (36bps) to 3,88%, outperforming Bunds by -1bps.
US High Yield (HY) Average Spread over Treasuries dropped -4bps (30bps) to 3,17%. US Investment Grade Average OAS dropped -2bps (12bps) to 0,99%.
In European credit markets, EUR 5Y Senior Financial Spread climbed 4bps (1bps, Z-score 2,4) to 0,65%.
Gold gained 1,3% (15,2%) while Silver sold off by -2,3% (14,3%). Major Gold Mines (GDX) gained 2,0% (31,2%).
Goldman Sachs Commodity Index gained 0,7% (3,5%). WTI Crude gained 1,6% (-4,8%).
Overnight in Asia…
S&P future +38 points; Hong Kong +0.2%; Nikkei unch.; China unch.
Futures jumped overnight on report that Trump reciprocal tariffs (to be announced on April 2d, dubbed as “liberation day” by President Trump) will be “more targeted” than feared, somehow confirming the impression that since last week’s FOMC meeting, the Fed “put” has become part of the equation again. Friday also witnessed a fait bit of CTA short covering (estimated around USD8.1bn) with pension funds also reported as buyers (for USD30bn). Allocation to North America and Europe are at their respective 5 year low and high, according to a Goldman Sachs report.
The CEO of UBS issued this week end an “open letter” showing that the honeymoon between Bern and UBS has become rather stormy after regulatory authorities recently confirmed, during discussions still ongoing, the need for a capital surcharge. The capital ratio would go to 20% from 14% under the most stringent scenario which UBS leaders consider would make the Bank uncompetitive vs. its international competitors, adding as a way to add pressure in the negotiations that a “relocation of the Bank would not be infeasible”.
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