Treece Talk Blog

In this commentary, the Cetera Investment Management Team discusses Monday’s market selloff fueled by news around tariffs and weakening economic data. Risks continue to rise as uncertainty about economic growth increases. These worries come at a time when valuations in large caps are stretched.

• The S&P 500 saw its biggest decline of 2025, fueled by news around tariffs. 
• While tariffs were in the spotlight, economic data also weakened. 
• With high uncertainty, diversification is even more prudent.

Looming tariffs and weakening economic data sent U.S. equities spiraling lower on Monday, as the S&P 500 lost 1.76%, the tech-heavy NASDAQ lost 2.64% and the small cap-focused Russell 2000 lost 2.81%. Declines have continued this morning. President Trump said that 25% tariffs on Mexico and Canada are set to begin today. According to reports, he also signed an order to increase Chinese tariffs by 10% to a total of 20%. President Trump said he is using tariffs as leverage to secure the borders and prevent the flow of drugs into the United States. Canada and China have vowed to retaliate with tariffs of their own. All these tariffs create a lot of uncertainty as investors try to understand the size and scope of them which now depends in large part on how they are implemented.  

While tariff news was front and center, there were additional catalysts sending stocks lower including weak economic readings on the manufacturing sector that also showed a sharp rise in pricing pressures. The combination of slowing economic growth and potentially rising inflation worried investors. February’s ISM Manufacturing Index fell slightly below consensus and is teetering on contraction. More importantly, the forward-looking component of this index, new orders, saw a sharp drop and did fall into contraction. The prices index spiked, and the employment index fell. Overall, it was not a good report for investors. Adding to the sentiment, construction spending in January unexpectedly declined. These reports only added to jitters from the previous weeks that saw weak consumer surveys and have many questioning if a recession could be looming. The Atlanta Fed publishes a model forecasting GDP in real-time and estimates for first quarter GDP growth fell to -2.8% with the new economic data inputs. We do warn this model can be widely inaccurate this far in advance and volatile. The Blue Chip economic consensus for first-quarter GDP growth is much higher and above 2%.

It is easy to get lost in the data and not see the forest for the trees. Overall, the big picture is that economic growth appears to be slowing, and tariffs are only compounding this and creating more uncertainty. Tariffs are being used as a negotiation tactic, so assuming concessions are met, they could change quickly. The impact is also uncertain as the implementation will dictate the size and scope. A potential government shutdown and government job cuts also contribute to slower growth concerns. All this is on top of already high valuations in large-cap stocks. Valuations have been stretched on prospects of artificial intelligence-fueled growth. With mounting risks, investors may finally be taking profits and shifting to other parts of the market that are less frothy like value and international stocks.

A lot of what we are seeing was laid out in our 2025 market outlook - economic growth will moderate, and the Fed is likely to cut rates less than markets expected. While economic growth appears to be slowing, we are not expecting a recession around the corner as the labor market remains solid. The Fed is also less likely to cut interest rates as inflation remains sticky and now faces additional price pressures. The last part of our 2025 market outlook, diversification is back, is a key strategy to navigate this uncertainty.

A correction, or a 10% pullback from the peak, is possible and could take the S&P 500 down to the 5500 level. However, remember that corrections typically occur about once a year on average and the S&P 500 hasn’t seen a correction since October 2023. We think it is prudent to be well-diversified to mitigate risk. It is important to stay focused on your own long-term financial goals and avoid getting caught up in the market enthusiasm or trying to call the next bear market.

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About Cetera® Investment Management 
Cetera Investment Management LLC is an SEC registered investment adviser owned by Cetera Financial Group®. Cetera Investment Management provides market perspectives, portfolio guidance, model management, and other investment advice to its affiliated broker-dealers, dually registered broker-dealers and registered investment advisers.

About Cetera Financial Group 
“Cetera Financial Group” refers to the network of independent retail firms encompassing, among others, Cetera Advisors LLC, Cetera Advisor Networks LLC, Cetera Investment Services LLC (marketed as Cetera Financial Institutions or Cetera Investors), and Cetera Financial Specialists LLC. All firms are members FINRA / SIPC. Located at 655 W. Broadway, 11th Floor, San Diego, CA 92101.

About Avantax 
Avantax, Inc. (Avantax) is a wholly owned subsidiary of Aretec Group, Inc. (dba Cetera Holdings). Avantax is a unique community within Cetera Holdings. Avantax Investment Services, Inc., a subsidiary of Avantax, Member FINRA / SIPC. Located at 3200 Olympus Blvd, Suite 100, Dallas, TX, 75019. Avantax and Cetera Financial Group are under common ownership.

Disclosures 
Individuals affiliated with Cetera firms are either Registered Representatives who offer only brokerage services and receive transaction-based compensation (commissions), Investment Adviser Representatives who offer only investment advisory services and receive fees based on assets, or both Registered Representatives and Investment Adviser Representatives, who can offer both types of services.

The material contained in this document was authored by and is the property of Cetera Investment Management LLC. Cetera Investment Management provides investment management and advisory services to a number of programs sponsored by affiliated and non-affiliated registered investment advisers. Your registered representative or investment adviser representative is not registered with Cetera Investment Management and did not take part in the creation of this material. He or she may not be able to offer Cetera Investment Management portfolio management services.

Nothing in this presentation should be construed as offering or disseminating specific investment, tax, or legal advice to any individual without the benefit of direct and specific consultation with an investment adviser representative authorized to offer Cetera Investment Management services. Information contained herein shall not constitute an offer or a solicitation of any services. Past performance is not a guarantee of future results.

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No independent analysis has been performed and the material should not be construed as investment advice. Investment decisions should not be based on this material since the information contained here is a singular update, and prudent investment decisions require the analysis of a much broader collection of facts and context. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The opinions expressed are as of the date published and may change without notice. Any forward-looking statements are based on assumptions, may not materialize, and are subject to revision.

All economic and performance information is historical and not indicative of future results. The market indices discussed are not actively managed. Investors cannot directly invest in unmanaged indices. Please consult your financial advisor for more information.

Additional risks are associated with international investing, such as currency fluctuations, political and economic instability, and differences in accounting standards.

A diversified portfolio does not assure a profit or protect against loss in a declining market.