Market Update - March 28th 2025

Tariffs without tax cuts

Amid ongoing economic turbulence, one critical question seems to have been overlooked: where are the tax cuts promised by Republicans? Many households had placed their hopes on President Trump’s return marking a new era of tax relief and deregulation. Instead, they now face growing concerns over potential austerity measures and the risk of steep trade tariffs.

This unexpected policy shift has created unease around household finances and job security—raising the possibility that consumer spending, a key pillar of economic growth, may begin to weaken.

Emerging signs of a recession

The latest data from the Conference Board highlights this trend. In March, the consumer confidence index fell sharply to 92.9 from 98.3 in February, missing expectations of 94.0 and reaching its lowest level in four years. Of particular concern is the steep drop in the expectations component, down nearly 10 points to 65.2—its lowest reading in over a decade. Historically, levels below 80 have been associated with recessionary environments.

While Fed Chair Jerome Powell has in recent years downplayed consumer confidence as a reliable indicator of spending, the broader evidence suggests a slowdown is indeed underway—albeit perhaps not as severe as the survey headline implies. Still, this softening tone could lay the groundwork for looser monetary policy than markets are currently pricing in, potentially benefiting assets such as Bitcoin.

Just a few months ago, back in November, consumer sentiment was strong, supported by solid GDP growth, record-high equity markets, and expectations of a business-friendly administration. However, that optimism has since dissipated as policy priorities appear to have shifted toward fiscal restraint and protectionist trade measures.

Durable Goods Orders for March offer a mixed picture. Orders rose by 0.9%, beating expectations of a 1% decline, which may reflect a continued unwinding of pre-tariff inventory build-ups. However, this comes after a strong 3.3% increase in the previous month, and growth has now slipped below its long-term average. Volatility in this data set underscores the broader uncertainty created by the current trade policy direction.

Core personal consumption expenditure, a crucial measure the FED watches to gauge inflation, came in above expectations at 0.4% month-on-month, driven primarily by a rise in the services sector, it is unclear what influence tariffs had at this point, but it signals to the FED that inflation remains persistent and reduces the prospect of further interest rate cuts this year.

A respite for digital assets

In the meantime, digital asset fund flows show a modest recovery. Last week recorded inflows of $644 million, followed by $240 million this week—suggesting investor sentiment remains cautious. The Fed’s messaging that tariff-related inflation is likely to be transitory may be tempering more aggressive repositioning.

Ethereum, which had experienced four consecutive weeks of outflows totalling $684 million, has finally seen a reversal with $16 million in inflows this week. This shift hints at a potential re-evaluation of fundamentals across the digital asset space as macro conditions evolve.