The word “uncertainty” dominated financial media this month as domestic equity markets struggled to navigate the mixed messaging emanating from Washington, D.C. The on-again, off-again tariff talk has put a significant damper on business investment as business leaders try to determine if and who will be impacted. Overall, it was another negative month for domestic equity prices as the S&P 500 lost -5.72% and entered correction territory at one point. The month was worse for the Nasdaq Composite, falling -8.2%. The Dow Jones Industrial Average was also red, losing 4.2% this month. Precious metal gold was a divergent asset this month, appreciating 7.9% as concerns over geopolitical conflict and tariffs dominated headlines.
U.S. economic data shows significant divergence, leading to a debate about whether the rising anxiety over President Donald Trump’s trade policies will push a moderating economy into a serious downturn. Surveys measuring sentiment among households and businesses, known as “soft data,” indicate a marked slowdown ahead as Trump implements tariffs and substantial cuts to federal spending. However, “hard data” from government statistics—such as employment and manufacturing—suggest that these fears, including concerns about stagflation or recession, may be exaggerated.
These mixed signals create uncertainty in Washington and on Wall Street regarding the future of the world’s largest economy, which has recently shifted from being a global outperformer to a major source of uncertainty. This week, Federal Reserve officials downgraded their forecast for annual growth by the most significant margin since 2022, while the OECD warned that U.S. trade policy will negatively impact economic activity worldwide.
Much of the anxiety stems from consumer attitude surveys conducted by the University of Michigan and The Conference Board, highlighting concerns that tariffs will increase prices. Executives from Nike Inc., FedEx Inc., and Delta Air Lines Inc. have recognized this trend, contributing to a multi-trillion dollar loss in stock market value over the past month.
Market participants believed the post-meeting statement and the Summary of Economic Projections (SEP) from the March FOMC meeting were generally dovish, with an increased probability of three interest-rate reductions by the end of the year. This behavior could indicate that the market believes the Fed will respond more aggressively to slower growth than to inflation driven by tariffs. However, we remain cautious about the Fed’s actions, given its focus on the “uncertain” outlook for both the economy and inflation at this time. This dovish interpretation by the market isn’t new; over the past two years, it has priced in expectations for the Fed to lower rates to 2.5% and back up to around 4% thrice. It wouldn’t surprise us if the market were to price another 1% in cuts that ultimately do not occur.
Weak payroll figures, stagnant wages, and a slowing services sector could trigger a rally in the rate markets, with 4.13% being the next key target for the 10-year Treasury yield. We do not anticipate any major shift in the counter-cyclical nature of Treasury returns relative to the economy, especially as the stock of debt is unlikely to stabilize in the near future, regardless of the Trump administration’s efforts. Volatility in risk assets isn’t over yet, which adds support for Treasuries. If the 10-year U.S. Treasury yield decline continues, interest-rate-sensitive equity sectors, such as utilities and real estate, should benefit.
Please see the following updates on existing positions held at the firm:
CF Bankshares (Ticker: CFBK)— We had a good discussion with the bank’s CEO, Tim O’Dell, in the middle of the month. We expressed our concern to Tim about the stock’s move during December and early January, which resulted in us giving most of our gains from the summer and fall. He expressed an understanding of our point of view and is focused on providing shareholders with a positive outcome. As a reminder, our investment thesis centers on the bank selling itself to a bank that aims to expand within the Indianapolis and Columbus markets. We believe that leadership will consider selling the bank in the second half of 2026. Castle Creek, the bank’s largest shareholder, would like to have the bank sold sooner, which has led them to register all their shares for sale in December. We do not believe the private equity firm is interested in selling all of its shares. We estimate the range for CFBK in a sale situation is in the low $30s, materially higher than the $21.50-$22 range it has traded at recently. In the near term, CFBK leadership will focus on improving its deposit base.
Sila Realty Trust (Ticker: SILA)- Sila Realty’s net operating income (NOI) has decreased slightly year over year as the healthcare-focused REIT undergoes some portfolio transitions. Adjusted funds from operations (FFO) per share fell by $0.03 quarter over quarter. The balance sheet remains underleveraged at 3.4x, which allows the REIT to grow without needing to issue additional equity. Based on current figures, which align with our 2025 NOI estimates, we project a stock price reflecting a 9.1% cap rate. This cap rate seems excessively high for the underlying assets. The assets are worth between $26 and $27 per share, with potential upside depending on how management allocates capital. On a positive note, the REIT has re-contracted with its major tenant, Genesis, enhancing the reliability of its revenue. Additionally, portfolio occupancy has improved to 96%.
EOG Resources (Ticker: EOG)— Our leading independent producer, EOG Resources, said during their fourth-quarter earnings call that oil production could rise a modest 3% in 2025 vs. 2024 to a little over 500,000 barrels per day, while its capital spending may decline 3% to $6.2 billion. The lack of oil hedges exposes the company’s revenue to a drop if crude benchmarks fall heavily this year. Though several E&Ps recently completed large acquisitions, EOG has stayed on the sidelines, and we don’t expect a sizable purchase in the near term as it remains focused on developing legacy acreage. Still, with a fairly diffuse footprint, it could benefit from streamlining its asset base to focus on more core areas. We continue to like EOG as our preferred exposure to domestic energy producers.
March brought continued volatility, with a bias towards the downside. We continue to monitor a wide array of leading economic indicators (LEIs) to determine whether we should generate more cash from stock sales or reallocate our growing money market cash into new risk assets. We continue to have a strong preference for quality, short-duration fixed income opportunities yielding at least 6-7% annually.
Best regards,
Stash J. Graham