Two the Point — Caution in the Air: What’s Next?

Consumer sentiment and spending data suggest growing caution, while businesses are also pulling back, adding to signs of an economic soft patch. However, history shows that periods of uncertainty often set the stage for strong market recoveries, and the data still supports a soft landing as the most likely outcome.

Key Insights:

• Retail sales increased 0.2% in February, not enough to offset January’s revised 1.2% decline, signaling uneven consumer demand.
• Core retail sales (ex-autos and gas) increased 0.5%, driven by a 2.4% jump in online shopping, while discretionary categories like restaurants (-1.5%), autos (-0.6%), and electronics (-0.3%) declined.
• Consumer sentiment continues to deteriorate, with job security concerns reaching levels typically seen during recessions.
• Business spending is softening, as surveys indicate a slowdown in capital expenditures and airlines report weaker bookings.
• Market volatility remains high, but sentiment indicators suggest we may be closer to a bottom than a top, reinforcing the case for a measured, long-term approach.