This Week in Review | Market Volatility, Recession Fears, US Inflation (Mar. 14, 2025)

Transcript

Tim Schluter:
Welcome to This Week in Review. This weekly segment is designed to highlight a few important developments you may have missed this week, what they may mean for markets, and most importantly, the potential impact for investors.

Now, let's review what happened this week.

First, market volatility.

Stocks fell sharply to start the week, and, despite a small rebound midweek, the S&P 500 closed in correction territory on Thursday— leaving investors understandably on edge. As we encounter volatility like this, we'd encourage investors to remember that short-term ups and downs— including corrections—go hand in hand with reaping stocks' long-term rewards.

Corrections can happen at any time—and for any or no reason at all. While the decline can be sharp, corrections typically bounce back up just as swiftly—which is why for long-term investors, it's important to remain disciplined. Missing even a few days of the recovery can have a material impact on your long-term returns. Despite our optimism for the year, we noted a correction wouldn't be unusual to see. Even great stock market years can see plenty of volatility on their way to solid returns. And while corrections can be difficult to stomach, they can actually be healthy for bull markets by resetting investor sentiment and rebuilding the "Wall of Worry" stocks love to climb.

While additional negative volatility is possible, we believe the factors driving volatility today simply don't have the surprise power to derail the economy, or, this bull market. Right now, we'd encourage long term investors to sit tight, avoid making any major decisions based on emotion, and patiently wait for markets to recover.

Next, recession fears.

When markets get shaky, it's easy for fear to take over. And recent fears over tariffs, federal layoffs and weak economic reports have many investors bracing for a recession. But our research suggests these fears aren't large enough or surprising enough to trigger a global recession. At the start of the year, the International Monetary Fund estimated the global economy would grow by more than $5 trillion in 2025. These estimates can change, but if you assess the economic impacts of the risk being discussed, they simply don't add up to enough to derail the global economy.

It's natural to worry that market drops mean a recession is coming, but the stock market often sends false alarms. For example, in 2018, we saw two corrections, but US GDP kept growing in 2019. A sharp decline alone doesn't predict a recession. Instead, we believe it's crucial to focus on economic fundamentals. Right now, the data suggests the economy is in good shape, though we continue to closely monitor ongoing developments.

Finally, US inflation.

US consumer inflation was better than expected in February and decelerated to 2.8% year-over-year. But many headlines look past the positive news and instead warned that tariffs may reignite inflation. However, we don't think this scenario is likely. Inflation isn't caused by a handful of prices going up. For inflation to jump, you need to see prices rising across the board.

What can cause this? In our view, inflation is driven by too much money chasing too few goods and services. One way to measure this is by looking at US money supply, which is growing at a normal, controlled pace. So right now, there doesn't appear to be "too much money" chasing too little of anything. Unless central banks suddenly pump a lot more money into the system, we don't see a major inflation surge coming—regardless of what happens on the tariff front.

That's it for this week.

If you want more insights, check out our other show, 3 Things You Need to Know This Week, released each Monday. You can also visit fisherinvestments.com for our latest market perspectives. Thanks for joining us and don't forget to hit like and subscribe!