Will There Be A Relief Bounce This Week?

*Analyzing the markets with Richie Naso, a Wall Street veteran of over 40 years and former member of the NYSE.

DJIA 52-wk: -1.51% YTD: -9.94% Wkly: -7.86%

S&P 500 52-wk: -2.50% YTD: -13.73% Wkly: -9.08%

NASDAQ 52-wk: -4.07% YTD: -19.28% Wkly: -10.02% 

WTI Crude Oil: 52-wk: -28.67% YTD: -13.57% Wkly: -10.63% 

The U.S. stock market experienced significant volatility during the week of March 31 to April 4, 2025, primarily due to escalating trade tensions between the United States and China.​

Mar Market Performance:

· S&P 500: The SPDR S&P 500 ETF Trust (SPY) declined by approximately 5.7% over the week, closing at $505.28 on April 4.​

· Dow Jones Industrial Average: The SPDR Dow Jones Industrial Average ETF (DIA) dropped around 5.4%, ending the week at $383.22.​

· Nasdaq Composite: The Invesco QQQ Trust (QQQ), tracking the Nasdaq-100, fell by about 6.1%, closing at $422.67.​

Key Events:

· April 2, 2025: President Donald Trump announced sweeping tariffs on nearly all imports, referred to as "Liberation Day" tariffs. This led to a sharp market decline, with the Nasdaq, S&P 500, and Dow Jones each suffering significant single-day losses. ​

· April 3, 2025: China retaliated by imposing a 34% tariff on U.S. goods, further exacerbating market fears and contributing to substantial sell-offs. ​

Investor Behavior:

Amid the market downturn, individual investors seized the opportunity to "buy the dip," setting a record with $4.7 billion in net equity purchases on April 3. ​

Economic Indicators:

· Oil Prices: U.S. crude oil prices fell to their lowest level since April 2021, trading around $62 per barrel, down more than 10% for the week. 

· Treasury Yields: The yield of the 10-year U.S. Treasury briefly fell below 4.00% on April 4, reflecting a flight to safety among investors. 

Analysts expressed concerns over the potential for a U.S. and global recession due to the escalating trade war. JPMorgan raised its recession probability estimate from 40% to 60%. ​Wikipedia+5Business Insider+5The Australian+5

In summary, the week was marked by significant market declines driven by escalating trade tensions and retaliatory tariffs, leading to heightened investor anxiety and substantial shifts in market dynamics.

The S&P Fell 6% on Friday:

The fall pulled the benchmark U.S. index close to a bear market, Wall Street’s term for a decline of more than 20 percent from its latest peak, which was in mid-February. The index recorded its worst week since March 2020, the beginning of the coronavirus pandemic, after two consecutive days of steep losses.

The Tech-Heavy Nasdaq Composite Index

Fell 5.8 percent, pushing it into a bear market, down almost 23 percent from its record closing high in December.

Goldman Sachs Analyst Says:

“Liberation day will not bring freedom from uncertainty”

After the bust comes the boom? That’s how President Donald Trump says stocks will react to his tariffs, but the market needs evidence he’s willing to negotiate trade deals.

The unexpected scale of the tariffs announcement drove the stock market to its worst day in five years. Tough talk from Commerce Secretary Howard Lutnick and senior trade advisor Peter Navarro that levies were not a start to negotiations contributed to the panic.

Trump, however, suggested he was open to deals, telling reporters “it depends” what other countries are willing to offer—a ray of sunshine in the gloom.

Governments around the world have largely held off on retaliating so far, perhaps convinced the White House will relent, with the notable exception of China, which said Friday it would impose additional tariffs of 34% on all U.S. goods. Maybe other nations are paying attention to Trump’s son Eric’s claim that “The first to negotiate will win” in a post on social-media site X. Alternatively, they may just be taking their time before reacting to a complex situation.

Trump’s personal and political history strongly suggests he is always open to a deal so long as it happens on his terms. But the choice to impose reciprocal tariffs means a series of bilateral negotiations, complicating hopes for a quick recovery.

How bad can things get? Longtime bear Barry Bannister at Stifel thinks not much worse, calling for the S&P 500 to consolidate around 5,500 this quarter from just below 5,400 at Thursday’s close. On the other hand, stock-market corrections normally last 115 days and we’re only 40 days in so far, noted analysts at UBS.

Trump has so far shocked the market with his willingness to allow stocks to drop. Negotiation and an eventual rebound is still the most likely outcome but that doesn’t mean there won’t be a painful wait to get there.

Many consumer discretionary stocks have underperformed this year as President Donald Trump has rolled out tariffs and consumer sentiment has tanked. In fact, consumer discretionary is one of the year’s worst performers in the S&P 500 index, losing 14% through March 31, including dividends. The sector is in the cellar along with technology stocks.

“The biggest issue is just day-to-day uncertainty in how people’s wallets are going to be affected by changes to the administration’s policies,” says Jaime Katz, a senior equity analyst at Morningstar who follows consumer discretionary stocks.

University of Michigan data showed that consumer sentiment dropped by 11.9% in March from a month earlier. It marked the third straight monthly decline of that widely followed index.

“Consumers continue to worry about the potential for pain amid ongoing economic policy developments,” according to a statement accompanying the survey.

For income investors, however, all is not lost in this sector. Companies such as Home Depot, Lowe’s, and Tractor Supply all sport decent yields that are gro “The consumer is in better shape than the headlines out there indicate,” says Stephanie Link, chief investment strategist at Hightower Advisors. “The reason is because they still have jobs.”

Link points out that personal income in February increased by 0.8% versus January, higher than expected. The savings rate has edged up to 4.6%. U.S. consumers, she adds, are in solid shape to weather a slowdown, even if gross-domestic-product growth slips to 1%. Link, however, doesn’t expect the economy to dip that far. Shares of home-improvement retailer Home Depot, which yields 2.5%, have returned about minus 5% year to date.

Katz says “there should be no issues paying the dividend” for Home Depot. And the company “throws off a ton of cash flow, and they do have a rising top line.”

That cash flow enabled Home Depot to pay $8.9 billion worth of dividends in its most recent fiscal year, which ended in early February, compared with about $8.4 billion the previous year. The company has been integrating its $18 billion acquisition of SRS Distribution, a building products distributor, since last year. In an encouraging sign, Home Depot’s same-store sales turned positive in the most recent quarter for the first time in two years.

Link says Home Depot has a solid business with great execution. Plus, “margins will expand once they integrate this SRS acquisition.”

The company in February said that it would boost its quarterly disbursement to $2.30 a share, up 2% from $2.25.

Lowe’s, Home Depot’s big rival in home improvement, yields 2%, below the 2.5% for Home Depot. Lowe’s shares are down about 5% year to date. Like just about every company in this sector, Lowe’s is feeling the consumer’s caution. In a recent call with analysts, CEO Marvin Ellison warned of “near-term pressure on [do-it-yourself] discretionary spending, particularly in bigger-ticket projects.”

Consumer discretionary stocks have largely been out of favor this year, but these are among the companies in that sector whose dividends look secure.

Company / Ticker: Gap / GAP
Recent Price: $21.22
YTD Return: -9.6%
Market Value (billion): $8.0
Dividend Yield: 3.1%

Company / Ticker: Hasbro / HAS
Recent Price: 62.14
YTD Return: 12.4
Market Value (billion): 8.7
Dividend Yield: 4.5

Company / Ticker: Home Depot / HD
Recent Price: 365.52
YTD Return: -5.4
Market Value (billion): 363.3
Dividend Yield: 2.5

Company / Ticker: Lowe's / LOW
Recent Price: 234.01
YTD Return: -4.8
Market Value (billion): 131.0
Dividend Yield: 2.0

Company / Ticker: Tractor Supply / TSCO
Recent Price: 55.13
YTD Return: 4.3
Market Value (billion): 29.3
Dividend Yield: 1.7

* Note: Market data as of April 1- Source: Bloomberg

Tractor Supply, a national chain of stores selling farm and ranch products to retail customers, yields a respectable 1.7%. The shares returned about 4% in the first quarter. The company recently increased its dividend by 4.5%, to 23 cents a share from 22 cents, marking the 16th straight year that it has boosted its disbursement.

“They’ve been very good capital allocators,” says Katz. “They’ve systemically bought back shares, paid their dividend, and invested in the business.”

Link’s other consumer discretionary holdings include the specialty retailer Gap, whose stock fell 12% in the first quarter. It yields 3.2% and trades at about nine times forward earnings, according to FactSet.

Link cites key changes, such as a move to revive and sharpen company brands Banana Republic, Old Navy, Gap, and Athleta under the watch of the company’s relatively new CEO, Richard Dickson. Dickson was named to the job in July of 2023, having been recruited from Mattel, where he was chief operating officer.

“It’s a show-me story. It’s a turnaround. You have got to believe in Richard Dickson, and I do,” Link says.

The company in February declared a quarterly dividend of 16.5 cents a share, up 10%.

At 4.5%, toy maker Hasbro sports one of the higher yields in the consumer discretionary sector. And the stock has handily outperformed the S&P 500 in this year’s first quarter, with a total return of 11%, versus minus 4% for the broader market.

Hasbro in February reported 2024 earnings of $4.01 a share, surpassing FactSet’s consensus estimate of $3.87. Revenue fell by roughly $900 million, to about $4.1 billion, last year, owing in no small part to the sale of media assets, says Katz of Morningstar. She points out that the company sold the Entertainment One film and TV business to Lionsgate to focus more on its toys and digital games segments. That deal, whose price tag was $375 million, closed at the end of 2023.

“Now they are at this place where they can really start to monetize their games business, which includes Wizards of the Coast, Dungeons and Dragons,” and other businesses, says Katz. “Those are very high-margin businesses for them.”

The company has been holdings its quarterly dividend stable at 70 cents a share since 2022. The dividend yield should help as a buffer if the stock hits more volatility.

That’s true of the other names in this column, too. It’s the beauty of good dividend stocks.

1) This week: I’m paying close attention to the A/D

2) Thursday CPI

3) Friday Q1 bank earnings JPM, Morgan Stanley & Wells Fargo

CLOSING REMARKS

In my opinion, if you are a buy and hold player, this is the time to start to nibble.

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