Week of March 31, 2025

Key Points for the Week

• Markets continue to be volatile due to continued policy uncertainty, especially around tariffs.
• There is still major potential pro-growth policy in the works as Congress continues to work on a fiscal package.
• Tariff uncertainty is keeping interest rate cuts on hold and there is increasing evidence the unpredictability is making it harder for companies to do business.

Current Trends & News is a weekly financial recap curated by SPC Financial®’s team of wealth management and tax-integrated advisors.* We monitor and explore the intricacies of the financial world and share insights into market developments.

Economic Update

If you read the financial press, you may have seen the terms “risk-on” and “risk-off”. When investing, there is a risk-return spectrum. Stocks typically have higher risk and higher return potential than high-quality bonds. High-quality bonds have lower risk and lower return potential than stocks, although they typically have higher risk and higher return potential than cash.

In financial speak, investors are:

- Risk-on when they are excited about investing in stocks (and other types of assets that have higher risk profiles).

“Risk-on environments can be carried by expanding corporate earnings, optimistic economic outlook, accommodative central bank policies, and speculation. As the market displays strong influential fundamentals, investors perceive less risk about the market and its outlook.”

Adam Hayes, Investopedia

A risk-on environment may lead to rising stock prices.

- Risk-off when they become cautious and concerned about losses. Risk averse investors may sell some types of stocks (and other types of assets that have higher risk profiles) in favor of dividend-paying stocks and more stable types of investments that can help preserve principal. Risk-off environments may arise when economic growth slows, economic uncertainty rises, company earnings slide lower, consumer confidence wavers, or financial markets experience other kinds of disruptions. A risk-off environment may lead to falling stock prices.

Last week, investors moved from a risk-on to a risk-off outlook. The change in attitude resulted from concerns about:

- Tariffs. Concerns about tariffs intensified last week when “An unexpected move against car imports this week renewed warnings from economists that tariffs will almost surely raise consumer prices and harm economic growth.”

Jeran Wittenstein and Ryan Vlastelica, Bloomberg

- Sticky inflation. Last week, the personal consumption expenditures (PCE) index, which is one of the Federal Reserve’s preferred inflation gauges, showed that headline inflation remained steady month to month and year to year. However, core inflation, which excludes food and energy prices, rose month to month and year to year.

- Consumer sentiment. The final reading for consumer sentiment in March did not improve.

“This month’s decline reflects a clear consensus across all demographic and political affiliations; Republicans joined independents and Democrats in expressing worsening expectations since February for their personal finances, business conditions, unemployment, and inflation.”

Joanne Hsu, University of Michigan Surveys of Consumers Director

During periods of market volatility, it is important to keep a long-term perspective. Having an asset allocation strategy that reflects your risk tolerance and financial goals helps insulate your assets from market turbulence. Asset allocation helps manage risk, but it does not prevent losses.

Last week, major U.S. stock indices moved lower. Yields on U.S. Treasuries were mixed.

This Week in the Markets

Emotions are going to move up and down with the markets. Last week was a down week, but none of the things we highlighted in last week’s commentary are different. Fast corrections (down more than 10%) have still had a strong rebounds within six months. Also, once a correction has started the historical odds still strongly favor a recovery rather than going into a bear market (by two to one going back to WWII).

Second, most of the downturn has been caused by the US technology-oriented mega-cap stocks.

Below is a table of how some major indexes have done since the February 19 highs. Gold is positive, as are long and intermediate Treasuries as well as Treasury inflation-protected securities (TIPS). International developed stocks (the EAFE Index) have held up well, as have lower-volatility stocks. Diversified investors have fared much better than some of the market indexes.

Policy Risks to Monitor

Risk 1: Tariffs Push Inflation Higher

Tariffs are coming, but as we have already seen, the specific policy can change overnight. Just take tariffs on Mexico and Canada. On January 20, (inauguration day) the president said tariffs would be implemented on February 1. Then it became February 4. Then they were delayed by another month. Then later another month to April 2, but the president then reversed course and said March 4. On March 3, Commerce Secretary Harold Lutnick said it is possible the tariffs will not go into effect, but the president then said they would that same day. Tariffs provisionally went into effect March 4 but were then delayed on March 6 to April 2. That is just Mexico and Canada.

Thus far, tariffs on China have been raised by 20%; a 25% tariff has been implemented on all steel and aluminum imports; the 25% tariff on Mexico and Canada is still scheduled to go into effect on April 2; and nebulously defined “reciprocal tariffs” are also supposed to go into effect April 2.

We know already that markets are sensitive to tariff news, as it was the main driver behind the February 19 – March 13 S&P 500 Index correction. We also know that the policy uncertainty created by tariffs is having an impact on Federal Reserve policy and businesses.

At the same time, the lack of clarity on tariffs makes it hard to gauge the longer-term impact. We have seen increases in both actual measures of inflation and inflation expectations in business and consumer inflation surveys. We have also seen a rise in imports (which is a negative in GDP calculations) as importers try to get ahead of tariffs (which has contributed to higher prices), but that negative impact is likely to unwind. It is also important to keep in mind that tariffs have a one-time impact on price levels but do not directly contribute to prices continuing to climb higher month to month or year to year. In that sense, they do not continually contribute to inflation. Another aspect of tariffs is that certain goods and services are elastic. If alcohol from Europe is more expensive, some consumers will buy domestic alcohol.

Risk 2: The Federal Reserve Keeps Policy Too Tight

This one is intimately tied to tariff uncertainty, which has handcuffed the Federal Reserve. The current median forecast by the Fed is for two rate cuts in 2025 while the market-implied expectation is just shy of 2.5. There was some market upside from the last meeting, but only in that the Fed raised their inflation expectations without lowering the expected number of rate cuts. At the same time, the Fed is not in a hurry to cut amid a lot of uncertainty, and that creates ongoing stress that could weigh on growth for cyclical areas of the economy.

Remember, a Fed funds rate target of just 2.25–2.50% nearly broke the economy in 2018–2019, something President Trump correctly pointed out at the time, and low rates, even after some tightening, were still a major tailwind. Right now, the target Fed funds rate target is 4.25–4.50%, two full percentage point higher. The economy has been incredibly resilient despite high rates, but cyclical sectors—including housing, small businesses, and manufacturing—have been under pressure and the labor market, while still strong, has exhibited some underlying risk, although it remains stable for now. Productivity growth, which is supported by a tight labor market and has been an important contributor to recent growth, may also be damaged by policy that is too tight if it leads to a rise in layoffs.

Risk 3: Unpredictability Restrains Animal Spirits

Companies put a lot of capital at risk based on expectations of future profits, and generally want policy clarity. Businesses also do not want a president who interferes with capital markets. An uncertain policy environment can make it harder to do business, although sometimes it does also present opportunities. Initially viewed as a small risk, it is clear uncertainty around some policies has weighed on business sentiment. Every policy environment has its element of unpredictability. With the last Trump administration, for example, we did see tariff policy uncertainty weighed heavily on business investment in 2018–2019 and put a dent in the expected supply-side impact of the Tax Cuts and Jobs Act. The Fed has cited four areas of policy uncertainty weighing on its outlook, trade, immigration, fiscal policy, and regulation. Businesses are facing similar challenges. Some of these (fiscal policy, regulation) continue to have likely eventual upside for businesses, but the current uncertainty is still making it hard to do business.

Note that policy uncertainty is often not a negative for markets because markets tend to be forward-looking, and high or peak uncertainty could occur near market lows. The uncertainty represented here is more focused on the ongoing impact of the ability to do business rather than the broad sense of uncertainty that has already led to economic disruption. September 2008 or March 2020, other times when uncertainty has been high according to a measure shared by the Fed, are not analogous to the current situation. Where it may be somewhat analogous is that policy uncertainty is so high right now that the actual impact is unlikely to be as bad as expected.

Risk 4: DOGE Inadvertently Breaks Something

From a market perspective, it is hard to gauge the economic impact (and eventual market impact) of DOGE. While some cuts have been dramatic, given the scale of an entire economy it is really the knock-on effects that would cause a true economic disruption. There are areas of the economy that are more vulnerable geographically— for example the Washington, DC, area— and industries that rely most heavily on research grants (e.g. medical research). There is also some risk, for example, of challenges in the disbursement of Social Security or other disruptions to the smooth functioning of government that can have an impact on people’s lives. Again, that is unlikely to matter a lot compared to the scale of the entire economy. Really, the political risk is larger than the policy risk, but the aggressive cuts do introduce “known unknowns” that require some caution and add to the general environment of policy uncertainty.

Risk 5: Internal Division Within the Republican Party Delays or Limits Policy Implementation

This is a policy risk that has a positive side. We noted during the election that markets tend to like mixed government. The spirit of compromise tends to get us better policy and helps avoid the ideological excesses of both parties. We will not have mixed government in 2025, and ideological excesses are making themselves felt.

However, the majorities in Congress are narrow. Republicans hold a 53–47 majority in the Senate, as well as the tie-breaking vote by Vice President Vance. Republicans currently have a 218–213 majority in the House with four seats vacant, two formerly held by Republicans and two formerly held by Democrats.

While we did not get divided government in November, there are some ways in which narrow majorities keep at least some of the spirit of divided government. Republicans will need their own moderates and their most hardline conservatives to vote yes to pass policy. The wings of the party will need to find common ground. There could be a cushion should Freedom Caucus members hold up a bill, since some Democrats could be pulled on board to support a bill if they believe it is in their interest, but it would require some compromise.

Narrow majorities keep more checks and balances in place, but they also increase the possibility of legislative chaos and will make it more difficult to pass any bill that does not have broad consensus among Republicans. Significant delays that disappoint policy expectations could lead markets to become impatient with Congressional infighting. The key date here is the end of the year deadline when major provisions of the TCJA sunset. Republicans are also aware that the President’s party has lost House seats in mid-term years in 20 of 22 mid-term elections since 1938, and even losing just a few seats could flip the House.

Risk 6: Immigration Policy Stunts Economic Growth

This is an underrated risk but still secondary to those listed above when it comes to the absolute level of risk. Clearly there are some genuine problems with current immigration policy. But the extent to which the resilience of the US economy depends on its ability to attract and absorb global labor is often underestimated. In fact, I would say the two key factors that have led to the structural advantage the US has over other developed economies is a more business-friendly overall policy environment, including labor market flexibility, and its history of acting as a destination of choice for immigrants.

It is hard to determine the level at which tighter immigration policy becomes a genuine risk, and before it becomes a risk, there certainly may be areas where reforms would provide benefits. The aim here is not to determine what the right immigration policy should be, but just to highlight that at some point tight policy can start to impact the economy and markets.

Thus far, the rate of deportations seems to have accelerated only modestly from the Biden administration, although the Trump administration has raised the media profile of deportations and some disputes in the courts have received a lot of attention. However, the numbers are difficult to gauge because the Trump administration has ended the regular reporting on deportations by ICE and the Department of Homeland Security.

However, net immigrant in-flows have fallen dramatically according to estimates from Goldman Sachs, from an annualized pace of 1.7 million to 0.7 million based on data from December and February. That will have a negative impact on job growth, but it will also lower the job growth needed to keep the unemployment rate steady because immigrants also contribute to unemployment. But even with a steady unemployment rate, fewer jobs added will mean slower aggregate income growth, which is the primary driver of US economic growth.

Here are just a few of the reasons immigration policy could pose a risk from an economic perspective:

-If the current level of flow of earners falls due to immigration policy and the chilling effect on new immigration, there is a direct impact on GDP. A dollar of lost income is a dollar of lost GDP. Policy that leads working immigrants to leave the US, or choose not to come in the first place, is the economic equivalent of exporting U.S. GDP growth to the rest of the world.

-There is a steep implicit regulatory burden on business from tight immigration policy, both by restricting their access to workers and making the cost of labor higher. Elon Musk’s and Vivek Ramaswamy’s initial support for expanding H-1B1 visas due to their contributions to US technology leadership was poorly received in some MAGA circles.

-A more restricted labor pool also has the potential to drive wages higher, posing some additional risk for inflation. This effect may be stronger with the prime age participation rate already near a record high.

Immigration reform is a positive goal, but also comes with some risks. How high those risks are depending on actual policy. It would take a large mistake to have enough of an impact on the economy to weigh on markets, but the potential for a large mistake is non-trivial.

Risk 7: Fed Independence

Trump has already put some pressure on the Federal Reserve to lower rates, although we would say he has been fairly restrained so far. Comments on Fed policy in and of itself are not a problem. There are mechanisms that help maintain Fed independence. But if there is an effort to overstep or to appoint a loyal and partisan Fed chair when Jerome Powell (himself a Trump appointee) steps down in May 2026, markets will respond. This one is unlikely to be a slow burn. If Trump oversteps, we would expect the market response to be unmistakable. If Trump floats test balloons that cause market jitters but can easily be stepped back, it is not an issue. But a genuine threat to Fed independence that cannot be walked back could be a problem. This may also arise through efforts to call into question the constitutionality of independent agencies with some degree of protection from executive authority. We have already seen some movement in this direction, and it could be a potential stepping stone to removing Fed independence.

Tax-Loss Harvesting

Volatile markets are challenging. Watching the value of your assets bounce higher and lower can be frustrating. In times like these, it can be helpful to focus on the opportunities that can be created by market volatility. One of those opportunities is tax-loss harvesting.

Investors “harvest” tax losses by selling an asset for less than they purchased it. Unfortunately, not every investment delivers stellar returns. Almost every investor has either owned an asset that loses value due to company underperformance or a market downturn. When the asset is sold at a lower value than its purchase price, the investor realizes a capital loss.

From a tax perspective, losses are quite valuable. They can help:

1. Minimize capital gains tax. Capital losses can be used to offset capital gains, dollar for dollar. For example, if an investor sells shares of Company A for a gain of $1 and sells shares of Company B for a loss of $1, then the loss offsets the gain.

2. Reduce taxable income today. When tax losses aren’t used to offset gains, the losses can reduce taxable income by up to $3,000. So, if an investor has a capital loss of $6,000 and a capital gain of $3,000, the capital loss could offset the capital gain and the $3,000 loss that is leftover could be used to reduce the investor’s taxable income.

3. Reduce capital gains and taxable income tomorrow. When capital losses are greater than capital gains and income reductions combined, the extra losses can be carried forward and used to offset capital gains and taxable income in the future.

The key to tax loss harvesting is that the money from the asset sale must be invested in a new opportunity – perhaps capitalizing on the chance to invest in a strong company at an attractive price, which is another benefit of market downturns. In general, the new investment should fill a similar role in the investor’s asset allocation strategy to the investment that was sold.

The silver lining of market downturns is that investment losses can be tax wins.

Manual Refunds for Deceased Taxpayers Delayed

The Treasury Inspector General for Tax Administration (TIGTA) has found that that the IRS took on average 444 calendar days to issue manual refunds for deceased taxpayers.

When a tax return is filed on behalf of a deceased taxpayer, the IRS will systemically issue the refund to the claimant. However, if the IRS cannot systemically refund a deceased taxpayer's overpayment, a Form 1310, Statement of Person Claiming Refund Due a Deceased Taxpayer, or court certified documentation may be required to have the refund issued.

From January 2021 through July 2024, the agency processed some 610,000 manual refunds for deceased taxpayers. In addition to problems with delays, TIGTA found deficiencies in IRS interest-calculation procedures for deceased taxpayers' refunds. Interest on the 610,000 manual refunds issued over the January 2021-July 2024 period totaled $237 million. 47,542 claimants may have been impacted by erroneous interest calculations and received either too much or too little in interest owed.

A Reminder About Scams

Scams usually start with a phone call, email, text, or another form of communication. The person typically claims to be from an agency or organization you know – or one that sounds like it might benefit you, such as the National Sweepstakes Bureau or a lottery.

The person may know your name and address. They may give you their official title or an identification number. No matter how official they seem, you can be confident it is a scam if the person contacting you:

• Indicates there is a problem with your benefits.
• Asks you to pay to receive a prize.
• Suggests that paying will increase the chance of winning.
• Requests financial information, such as a bank account or credit card number.
• Pressures you to act immediately.
• Tells you to pay using a specific method, such as a gift card or cryptocurrency.

If this happens, remember that the Social Security Administration, the Internal Revenue Service, Medicare, and your bank do not call, email, or text to ask for money or personal information. They do not demand that you pay immediately, and they do not accept payment by gift card, prepaid debit card, cryptocurrency, or another untraceable form of money transfer.

When you suspect a scam:

• Hang up or close the message. Do not respond in any way.
• Remain calm.
• Think back over the call. Write down any personal information you may have inadvertently shared.
• Report the scam. Contact the Federal Trade Commission at ReportFraud.ftc.gov. You may also want to report the incident to your state’s attorney general or your local consumer protection agency.
• Share your knowledge. Talk with family, friends, and neighbors about your experience so they know what to look out for.

When you receive a digital message, no matter how official it seems, do not click on any links. Do not give or confirm any personal information, including your name, birth date, phone number, address, email address, place of birth, driver’s license, passport, or Social Security numbers, bank or other account numbers, and PIN numbers.

Being skeptical can keep you safe. Remove yourself from the situation. Do not share information. If you feel anxious and need to confirm that it was a scam, contact the organization using a method provided on their official website.

IRS Urges Taxpayers to Not Fall Prey to “Ghost Tax Preparers”

A common problem seen during tax season, “ghost preparers” pop up to encourage taxpayers to take advantage of tax credits and benefits for which they do not qualify. These preparers can charge a large percentage fee of the refund or even steal the entire tax refund. After the tax return is prepared, these “ghost preparers” can simply disappear, leaving well-meaning taxpayers to deal with the consequences.

While most tax professionals offer quality service, these ghost preparers and other unscrupulous preparers try to take advantage of people and should be avoided at all costs. The IRS encourages people to use a trusted tax professional, and IRS.gov has important information to help people choose a reputable, accredited practitioner.

Warning Signs to Look Out For

Most tax return preparers provide honest, high-quality service. But some may cause harm through fraud, identity theft and other scams. Paid preparers must sign and include a valid preparer tax identification number (PTIN) on every tax return. A ghost preparer is someone who does not sign tax returns they prepare. These unethical tax return preparers should be avoided, especially if they refuse to sign a complete paper tax return or digital form when filing electronically.

Taxpayers are also encouraged to check the tax preparer’s credentials and qualifications to make sure they are capable of assisting with the taxpayer’s needs. The IRS offers resources for taxpayers to educate themselves on types of preparers, representation rights, as well as a Directory of Federal Tax Return Preparers with Credentials and Select Qualifications to help choose which tax preparer is the best fit.

Some of the warning signs of a bad preparer include:

• Shady fees. Taxpayers should always ask about service fees. Shady tax preparers can ask for a cash-only payment without providing a receipt. They are also known to base their fees on a percentage of the taxpayer’s refund.
• False income. Untrustworthy tax preparers may also invent false income to try to get their clients more tax credits or claim fake deductions to boost the size of the refund.
• Wrong bank account. Taxpayers should also be wary of a tax preparer attempting to convince them to deposit the taxpayer’s refund in their bank account rather than the taxpayer’s account.

Good preparers ask to see all relevant documents like receipts, records, and tax forms. They also ask questions to determine the client’s total income, deductions, tax credits and other items. Taxpayers should never hire a preparer who e-files a tax return using a pay stub instead of a Form W-2. This is also against IRS e-file rules.

Report Fraudulent Activity and Scams

The IRS highly encourages people to report tax return preparers who deliberately prepare improper returns and any activity that promotes improper and abusive tax schemes.

To report an abusive tax scheme or a tax return preparer, people should use the online Form 14242 – Report Suspected Abusive Tax Promotions or Preparers, or mail or fax a completed Form 14242 and any supporting material to the IRS Lead Development Center in the Office of Promoter Investigations.

Mail: Internal Revenue Service Lead Development Center MS7900 1973 N. Rulon White Blvd. Ogden, UT 84404 Fax: 877-477-9135

Alternatively, taxpayers and tax practitioners may send the information to the IRS Whistleblower Office for possible monetary award.

Did you Know? This Week in History

April 2, 1968: “2001: A Space Odyssey” Has Its World Premiere

Stanley Kubrick’s 2001: A Space Odyssey had its world theatrical premiere on April 2, 1968.

Kubrick, whose 1964 Cold War satire Dr. Strangelove had been popular with audiences and critics alike, was intrigued by science fiction but felt the genre rarely produced interesting films. He became determined to make one, using the sci-fi story The Sentinel as source material and enlisting its author, Arthur C. Clarke, as his co-writer. The film does feature a coherent plot, involving two scientists and a highly-intelligent computer sent to investigate a mysterious event near Jupiter, but several scenes—including the film’s now-legendary opening, which seems to depict hominids learning to use tools after the appearance of a mysterious monolith—are surreal and highly open to interpretation. Filming required the construction of a giant centrifuge to serve as the spaceship’s interior and numerous expensive visual effects, including a groundbreaking psychedelic sequence near the end of the film so complex that staff referred to it as the “Manhattan Project.” Kubrick is said to have removed over 15 minutes from the final cut, which nonetheless ran well over 2 hours.

Today, few would argue against the greatness of 2001, but on the night of its debut Kubrick felt he had failed. Lead actor Keir Dullea estimated that he saw 250 people walk out of the premier, while Clarke reported hearing a studio executive remark, “Well, that’s the end of Stanley Kubrick.” Some reviewers agreed, calling the film “plodding,” “immensely boring,” and even “a disaster.” Many reviews were glowing, however – Roger Ebert gave it four stars, while Charles Champlin of The Los Angeles Times called it the “ultimate statement of the science fiction film.” Audiences seemed to agree with Champlin, flocking to the film upon its release and creating such demand that many American theaters screened it regularly for over a year. The film went on to win an Oscar for Best Visual Effects and numerous other awards. Today, it is regarded not only as a seminal work of science fiction but as one of the defining films of the 20th century.

Weekly Focus

*“Lottery: A tax on people who are bad at math.” *

Ambrose Bierce, Short Story Writer and Journalist

”You will become way less concerned with what other people think of you when you realize how seldom they do.”

David Foster Wallace, Short Story Writer and Novelist

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