“In the business world, the rearview mirror is always clearer than the
windshield.”
–Warren Buffett, American Investor and Philanthropist
Volume 27
Forecasting in the Fog: Markets, Sentiment, and The Tariff Tangle
What Happened in the Markets?
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Imagine going out for a family hike, and one of your kids asks why your weather app forecasted sunshine while rain was actually falling on you. Our response through laughter could be, “Sometimes the data just doesn’t capture what’s happening right above our heads”.
That small moment feels strangely relevant to the current economic climate. In the first quarter of 2025, a notable disconnect emerged between economic indicators and consumer sentiment. In other words, the data reflects one trajectory, while perceptionand behavior often suggest something else entirely. This dissonance has become a centraltheme in interpreting our current position in the business cycle.
The S&P 500 declined by approximately 4.2% during the first quarter of 2025, primarily due to decreases in the technology and consumer discretionary sectors. March alone posted the second-worst return for that month in over two decades. Yet, this doesn’t tell the full story. Seven of the eleven sectors in the index ended the quarter in positive territory.
In fact, bonds showed modest gains, gold prices appreciated significantly, and many global markets held up well. For those with diversified portfolios, the quarter offered some insulation against the headline-level turbulence. It serves as a reminder that performance across asset classes and sectors can vary significantly—even during periods of volatility.
Beyond equities, fixed income markets have played an interesting role in stabilizing investor sentiment. Yields edged down slightly in March, helping cushion portfolio losses. Commodities, particularly gold, served their traditional safe-haven role as investors looked for protection against inflationary threats.
International equity markets presented a more mixed picture. European stocks showed resilience, while emerging markets were more volatile, often mirroring the ebb and flow of trade headlines. Diversification across geographies proved beneficial, especially for portfolios seeking to mitigate US-centric risk.
In Q1, a notable discrepancy emerged between consumer sentiment and actual spending. While sentiment surveys suggested cautious households preparing for economic challenges, spending data, particularly in autos and durable goods, showed a different trend. Vehicle sales reached an annualized rate of 17.8 million in March, the highest since early 2021, likely driven by concerns over potential tariffs as well as strong consumer demand. Retail sales growth also extended to home improvement, travel, and select discretionary categories like entertainment and dining, indicating that despite expressed caution, consumers were spending more freely.
Many corporations are positioning for slower growth that hasn’t yet materialized in the data. Consumer caution may be more about future expectations than present constraints. This may reflect a behavioral lag—the idea that sentiment tends to turn negative before economic conditions truly deteriorate.
It also highlights the importance of looking beyond surveys and into actual spending behavior. In our investment process, we continue to rely heavily on high-frequency data to avoid being misled by narratives that are not supported by economic behavior.
The resurgence of tariff policy is becoming a central theme in the economic outlook. Whether we see targeted reciprocal tariffs or a flat 20% tax on all imports, this represents a shift toward protectionism not seen in decades.
For those interested in a more technical analysis, I have covered this issue extensively in my recent whitepaper, “The Inflationary and Economic Resilience Risks of Tariffs” (read here). The short version: tariffs function like a regressive consumption tax, reducing consumer purchasing power and introducing cost pressures across supply chains.
These cost increases could push inflation higher just as the Federal Reserve was preparing to cut rates. That puts the Fed in a difficult position—one where inflationary pressures and weakening growth could lead to policy paralysis. This is reminiscent of the “transitory inflation” debate we witnessed earlier in the decade, only now with trade policy as the primary catalyst.
The Fed finds itself in a narrowing corridor of choices. If tariffs spark even a modest price surge in consumer goods, the Fed may have to pause rate cuts that markets have already priced in. That, in turn, could tighten financial conditions further than intended. The challenge lies in distinguishing temporary price spikes from sustained inflation trends.
Additionally, the risk of retaliatory tariffs from trade partners could create asymmetric effects across different sectors of the economy. Industries reliant on international supply chains— like retail, automotive, and manufacturing—may see margin pressure, while others may benefit in the short term. This uneven impact complicates both monetary and fiscal responses.
Historical data indicate that post-election years typically experience a weak first quarter, followed by a stronger performance in Q2 and beyond. If inflation remains manageable and tariffs do not escalate, we could see improved market sentiment and economic stability.
Seasonality trends indicate a possible rebound, as April is often a strong month for equities. Technical indicators suggest a potential relief rally if macro conditions are favorable. While we don’t base investments on seasonality, the factors supporting spring recoveries are currently present.
Meanwhile, the corporate earnings season will provide us with fresh data on margins, pricing power, and forward guidance. These earnings calls may offer insight into whether the cost pressures from tariffs are being absorbed, passed on, or mitigated through supply chain reengineering. We’ll be watching closely.
During this period, we are focusing on diversification, monitoring macroeconomic data, and adhering to a disciplined investment strategy. Much like unpredictable weather, the key is to stay adaptable. Financial markets, like weather, can indicate trends but struggle with timing. Our responsibility is to analyze data beneath the headlines and position our portfolios to manage risk and capitalize on opportunities. At Atlas, we are committed to providing datadriven insights and appreciate your trust as we navigate upcoming challenges.
As noted, March was one of the most challenging months in the past two years. US large-cap stocks, as represented by the S&P 500, declined by -5.6%, while small-cap equities performed even worse, posting a -6.8% return.
International markets held up better amid macroeconomic and policyrelated uncertainty. Emerging markets rose 1.3% for the month, while developed markets outside the US were flat.
Fixed income performance was mixed: Treasuries edged higher by 0.2%, and the Aggregate Bond Index ended the month unchanged. Riskier credit sectors struggled, with bank loans and high-yield bonds returning -0.5% and -1.1%, respectively.
March reflected the culmination of market unease around future inflation pressures and the direction of trade and monetary policy. As highlighted in this month’s memo, economic data continues to show resilience, but elevated uncertainty is weighing heavily on investor sentiment. We will continue to monitor the situation closely and allow the incoming data to guide any necessary portfolio adjustments.
As the Chief Investment Officer, Stephen Swensen oversees investment management, research, portfolio design, and all investment-related operations at Atlas. He also chairs the Atlas Investment Committee, guiding strategic investment decisions.
Stephen’s career began as a Financial Analyst for Deseret Mutual Benefits Administration (DMBA), a role in which he managed investments for a private pension fund and insurance company. Subsequently, he served as an investment analyst and portfolio manager for local Registered Investment Advisors (RIAs). Before joining Atlas, Stephen contributed his expertise as an Outsourced Chief Investment Officer (OCIO) for the Carson Group, supporting advisors on the West Coast. Educationally, Stephen holds an MBA and an MS in Investment Management and Financial Analysis from Creighton University. He has earned the Series 65 Uniform Investment Advisor License and is actively pursuing the prestigious
Chartered Financial Analyst (CFA) designation.
Beyond his professional achievements, Stephen is an enthusiastic hockey fan, both on and off the ice. He finds joy in playing the piano, golfing, reading, and outdoor cooking. However, his greatest source of happiness comes from spending quality time with his wife and four children
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