Welcome to the April 2025 Newsletter. This month, we’re discussing the economy, employment, financial terminology, and more.
Summary
Mohamed El-Erian, Allianz Chief Economic Advisor, spoke on CNBC on March 24.
El-Erian said, “The good news is we got some pretty nasty technical indicators behind us. I believe the inherent strength of the US economy and the US markets are still present. But there is a massive cloud of uncertainty over them right now. If and when that cloud clears, people will focus back on the inherent strengths.”
“We have three things underpinning a positive and growing US economy:”
- “Confidence in fiscal and monetary policy.
- Confidence in US exceptionalism.
- Confidence in well-functioning stock and bond markets.”
“But right now the confidence in the first two are shaky.”
Quote of the Day
Ben Franklin’s Four Rules of Personal Conduct:
1. It is necessary for me to be extremely frugal, till I have paid what I owe.
2. To endeavor to speak the truth in every instance.
3. To apply myself industriously to whatever business I undertake.
4. I resolve to speak ill of no man.
Franklin was the wisest, well-traveled, and greatest inventor of early America. If Nobel Prizes had been around in his time, he would have won them all. His contributions during the drafting and amending of the Declaration of Independence and the Constitution were significant. After 1776, it was his age (70)and declining health that kept him from public office and the Presidency.
Pop Quiz
What is the Business Roundtable and what do they advocate?
The answer to this month’s Pop Quiz is at the bottom of the newsletter.
The Economy
Employment
Total U.S. nonfarm payroll employment rose by 151,000. The official unemployment rate, U-3, increased slightly to 4.1%. The December 2024 and the January 2025 combined employment numbers were revised lower by 2,000 than previously reported.
Chart 1 is based on the Bureau of Labor Statistics official unemployment rate, U-3.
Chart 2 shows the two-year trend of employment growth.
The Job Openings & Labor Turnover Survey (JOLTS) increased slightly to 7.7 million open jobs across the country as of the last business day in January. It was 7.6 million in the prior month. Even though the October and November JOLTS data showed an increase in open jobs, the 10-year chart below shows the downward trend has continued in open jobs since March 2022.
The seasonally adjusted Total U.S. Unemployment Rate, U-6, increased to 8.0% in February as compared to the prior month. There were 7.6 million people unemployed in February, age 16 and older. Last month, it was 7.5 million people unemployed.
February Unemployment Rates by Education Level
Average hourly earnings of all employees on private nonfarm payrolls were up 4.0% in February compared to a year ago. It was 4.1% the previous month.
| Less Than High School Diploma | 6.0% |
| High School Graduate, No College | 4.2% |
| Some College, Associate's Degree, or Skilled Trade Degree | 3.5% |
| Bachelor's Degree or Higher | 2.5% |
Leading Economic Indicators (LEI) sponsored by The Conference Board
The LEI decreased 0.3% in February. The Conference Board’s spokesperson said, “The US LEI fell again in February and continues to point to headwinds ahead. Consumer expectations of future business conditions has turned more pessimistic.”
Gross Domestic Product (GDP)
The Bureau of Economic Analysis said the final estimate for GDP in the fourth quarter of 2024 rose at an annual real rate of 2.4%. GDP for the third quarter 2024 was 3.1%.
The increase in the fourth quarter GDP reflected an increase in consumer spending and government spending. For the year 2024, GDP increased 2.8% and grew 3.2% in 2003.
Labor Productivity – Quarterly
Annualized and seasonally adjusted, nonfarm, business sector labor productivity increased a revised 1.5% in the fourth quarter of 2024, as reported by the Bureau of Labor Statistics. For the same quarter a year ago, the increase was 1.6%.
By calendar year, labor productivity grew a revised 2.7% in 2024 and 1.8% in 2023. For the gross domestic product (GDP) to continue to grow, our country needs population growth, or productivity growth, or more realistically, both.
Inflation
Annual inflation remained the same at 2.5% as measured by the Personal Consumption Expenditures (PCE) index for February. It was 2.5% in the 12-months ending in January. Core PCE index, which excludes food and energy, increased to 2.8% in February. It was 2.7% in January.
University of Michigan Consumer Sentiment
Consumer sentiment in March had a substantial drop to 57.0, as compared to February’s 67.4. See the 10-year chart below.
This month’s decline reflects a clear consensus across all demographic and political affiliations. Two-thirds of consumers expect unemployment to rise in the year ahead, the highest reading since 2009.
Mortgage Rates and Average Existing Home Prices
As of March 31, 2025, the average 30-year fixed-rate mortgage had an interest rate of 6.74%, compared to 6.79% last month. The average 15-year fixed rate mortgage had an interest rate of 6.13%, compared to 6.25% last month.
The median existing-home sale price increased in February 2025 to $398,400 from $396,900 the month before. That is a 3.8% increase compared to February 2024 according to the National Association of Realtors. The inventory of existing homes for sale remained the same at a 3.5-month supply in February. The desired supply-target is 6 months.
The U.S. Public Debt as Issued by the Treasury Department as of March 31, 2025, was:
$36,667,000,000,000.
Last month it was $36,536,000,000,000.
Important Dates in March
THE STOCK MARKET
Commentary
This month we have three short quotes as published on CNBC on March 24.
From JPMorgan, “The risk of another violent stock market unwind (downturn) is low in the short-term”.
From Evercore ISI, an independent investment banking advisory firm, “The bull still lives!”
(A bull market is a market moving up.)
From Fundstrat, “We are setting up for a potential face-ripping rally!”
Stock Market Valuation
Lori Calvasina, Head of Equity Strategy at the Royal Bank of Canada (RBC) said on CNBC on March 13, “We have not made a change to our base case of S&P 500 Index ending 2025 at 6,600, but I will tell you I’ve been talking about my bear case (at 5,775) as much as my base case so far this year.”
Now Mark has a question: Did we just have a stock market correction? Yes! A correction is a 10% or more drop in a major stock market index from a recent high. Recent details for the S&P 500 Index are:
The recent closing high was 6,144.15 on February 19.
The recent closing low was 5,521.52 on March 13.
That was a 10.1% drop – an official correction.
Here are the end of year 2025 projections from some major brokerage houses.
Since last month, Goldman Sachs reduced their year-end S&P 500 projection from 6,500 to 6,200. Also, Yardeni Research has cut their target from 7,000 to 6,400.
The S&P 500 Index closed on March 31, 2025 at 5,611.85. Year to date, the market is down 4.6%.
Note how the market has jumped around the last seven months with four months down and three months up.
Prior Annual S&P 500 Performance As Per The Exchange Traded Fund, VOO
2024: +24.98%
2023: +26.32%
2022: -18.19%
2021: +28.78%
Recommended Action for Your Stock Portfolio
Today, what is one of the most dominate investment themes? Artificial intelligence (AI).
So, what are some of the ways to invest in AI? By buying companies such as Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and others. Or an investor could buy the exchange traded fund, QQQ. But to make AI workable, what must also be investible?
If an investor believes in AI, then software and hardware developers across the board will also benefit.
And more data centers will have to be built. By one estimate we need another 5,000 data centers in the US.
Each new data center will require 100,000 AI chips. Besides new AI chips, we need a significant expansion of the internet grid. Over 30% of the internet grid is 25 years old or older. The electrical grid is even older. A big portion of the electrical grid was built in the 1960s and 1970s. Remember all the fires in California caused by the grid?
Electrical grid expansion will drive demand for natural gas, solar and wind power, copper, aluminum, and possibly even modular nuclear power plants – all of which will be managed by electrical utility companies.
So, AI is just one theme and look how broad that drives so many other industries. Other themes we believe in today involve the following sectors: Financials, Health Care, Industrials, and Cyber Security – all of which are in the U.S. Lastly, we believe in international large cap value using the exchange traded fund, DIVI.
• Not FDIC Insured • No Bank Guarantee • May Lose Value
4TH QUARTER 2024 AVERAGE AUTO LOAN DETAILS
Here is a summary of the average new auto loans in the U.S. in the 4th quarter 2024.
We like Suze Orman’s recommendation for auto loans, “Don’t take out an auto or truck loan for more than three years. If you can’t afford those higher monthly payments (as compared to a six-year loan), save up a bigger down payment before buying, or buy a cheaper vehicle”.
Dave Ramsey says only pay cash for vehicles. Dave also says the current value of all your vehicles should not be more than 50% of your family’s annual gross income. That’s another good rule of thumb.
How to buy a cheaper, decent vehicle you can be proud of? Buy a loaner car the dealership used to lend out to their service department customers or buy a car coming off a 2- or 3-year lease.
Before buying your next vehicle, remember two things:
- What kind of debt is “auto loan debt”? Bad debt!
- Vehicles depreciate, single-family homes appreciate! Before buying an expensive new car, consider remodeling your home’s kitchen or bathrooms.
Financial Markets Vocabulary
What are zero-coupon bonds?
A zero-coupon bond is a debt security that does not pay interest but instead trades at a steep discount to its par value or face value. When the bond matures, the bond is paid off at its full face value. The difference between the purchase price of a zero-coupon bond and its par value is the investor’s return.
For example, Mark and his wife in the late 1980’s wanted a safe place to invest for our two son’s college expenses that were expected to occur between 1997 to 2004. We chose to buy a variety of Illinois state education bonds as we were living in Illinois at that time. Depending on the maturity year (they always came due in July), we paid $2,000 to $2,500 for each $5,000 bond. We probably bought 7 or 8 bonds total. Back then, $5,000 was a significant amount to use to partially pay for one year of college for one student. These bonds ended up paying about 40% of the total college expenses for two.
There is one primary downside to a zero-coupon bond. The holder has to declare the interest that would have been paid but wasn’t on their income tax filings. This is called phantom interest. Phantom interest is the growth in the value of the bond each year. Also, an investor needs to confirm that the bonds are liquid and can be sold in a pinch. The whole idea is to hold the bonds to maturity. That way, the investor will only pay a commission to the broker one time – when purchased. If the bond is sold early, a second commission will have to be paid.
OK, Now What Do I Do?
Tom Lee, Fundstrat Head of Research said recently on CNBC, “Average annual returns in the S&P 500 Index since 2015 (10 years thru 2024) have been +16.5%. But if we take away each year’s 10 best days, the index now has an average annual return of -10%.”
Conclusion: Don’t try and time the market with tactical exits and re-entry or else an investor will miss some or all of the 10 best days in the market each year. Buy and hold strategies tend to outperform timing the market.”
For example, here are the three best days in March. These daily performance numbers are not typical, but they tend to happen eight to 15 times a year. Miss out on these high-performance days, and your portfolio for the whole year will suffer.
Stock Market Daily Returns for the Best Days in March
Note, “buy and hold” does not mean “buy, hold, and forget about it”. An investor needs to spend more than 10 minutes a year managing their stock and bond portfolios.
• Not insured by any bank or government • Subject to risk & possible loss of principal
Our Financial Bad Boy This Month
American Express Is Fined for Deceptive Card-Sales Tactics
The Wall Street Journal, January 17, 2025, Page B1
American Express (AMEX) has agreed to pay approximately $230 million in penalties over deceptive practices tied to how it sold credit cards and wire services to small-business customers. The settlement includes a $108 million civil penalty from the Justice Department and a nonprosecution agreement with the Eastern District of New York over a criminal investigation into some of the practices.
Among the practices that the Justice Department cited were AMEX’s deceptive sales and marketing of wire products that were pitched to customers as being helpful to avoid paying taxes. The card company was also cited for its practice of entering “dummy” employer identification numbers on small-business credit card accounts, a shortcut salespeople used to increase card sign-ups.
The problematic card sales practices began when AMEX was scrambling to retain Costco small-business customers after the warehouse club ended its long-running exclusive partnership with the card company. Small businesses were a particularly valuable slice of Costco’s business, and the potential revenue hit to AMEX from the loss of Costco customers was enormous.
The Bond Market
Commentary
Here are some comments by Robert Kaplan, Goldman Sachs Vice Chairman and former Dallas Federal Reserve Bank President on March 28.
“Inflation is sticky and likely will get stickier due to cost issues and supply side issues. Growth is slowing, but don’t know how low it will go. For the Fed, the smartest thing they can do is rather than jump into this fog, is to slowdown expectations of a change in interest rates, and let things clarify and be patient.”
“Let me tell everyone what I would do if I was still on the Fed. As long as inflation is sticky, I’m going to be reluctant to lower rates. Having said that, if I see a slowing in the economy below GDP growth of 1.75%, such that it creates a meaningful spike up in the unemployment rate, then I would have to consider taking action.”
“Prior to January 20 (inauguration day), sticky prices were due to excess demand driven by excessive fiscal spending of $2 trillion annually. We are now reducing the fiscal spending, but we are replacing the prior ‘demand driven inflation’ with ‘supply issues’ (including lack of labor and tariffs).
Recommended Action for Your Safest Money
Our recommendations for an investor’s safest money have not changed from last month.
Our recommendations, in no particular order, are:
- Short-term U.S. Investment-Grade Corporate or Securitized bond funds.
- Short-term high-yield bond funds.
- U.S. Savings I-Bonds which have a max contribution of $10,000 per account per year.
Due to the relatively low return of these investment products, investors should not put 100% or anything close to that in these products. These products are only for an investor’s safest money or perhaps 5% to 25% of an investor’s total portfolio. These products are credit safe, but they will not provide the growth or income needed to stay ahead of, or even keep up with, taxes and inflation.
Past performance is not a guarantee of future results.
Pop Quiz Answer
What is the Business Roundtable and what do they advocate?
Answer:
The Business Roundtable is an association of more than 200 chief executive officers (CEOs) of America’s leading companies, representing every sector of the U.S. economy. Business Roundtable CEOs lead U.S.-based companies that support one in four American jobs and almost a quarter of U.S. GDP. Through CEO-led policy committees, Business Roundtable members develop and advocate directly for policies to promote a thriving U.S. economy and expanded job opportunities for all Americans.