Americans aren’t upbeat about the economy, with their confidence level hitting a new low, triggered by surging inflation and a looming global trade war. Fresh fears of a trade war grew after President Donald Trump unveiled steep tariffs on a broad range of imported goods last week.
Also, a sharp rise in inflation has forced the Federal Reserve to pause its rate-cutting cycle, with little chance of resuming it in the near term. The uncertainty surrounding the Fed’s next steps, combined with growing fears about the nation’s economic outlook, has triggered market volatility this year, after a robust 2024.
Given these economic challenges, investors may find stability in large-cap value funds, namely, Northern Income Equity NOIEX, Dodge & Cox Stock I DODGX and TIAA-CREF Large Cap Value Fund TCLCX.
Consumer Confidence Declines Sharply
The Conference Board said last week that the Consumer Confidence Index dropped to 98.3 in February—well below analysts’ expectations of 102.3. This marks the sharpest decline since August 2021 and the lowest reading since June 2024.
Adding to concerns, a separate report showed consumer sentiment dipping to a 15-month low in February. The University of Michigan’s Consumer Sentiment Index fell from 71.7 in January to 64.7 in February, its lowest level since November 2023. This was also lower than the preliminary February estimate of 67.8.
The readings follow a batch of weak economic data released over the past couple of weeks, raising alarm about the economy's overall health. Among the key factors dragging down sentiment, inflation remains the most pressing issue.
Inflation and Tariffs Fuel Economic Uncertainty
Inflation has surged over the past three months, prompting the Federal Reserve to halt its planned rate cuts. Between September and December 2024, the Fed had already reduced interest rates by 100 basis points but has since signaled a more cautious approach, suggesting fewer cuts in 2025.
Investors had anticipated that the Fed would lower interest rates in May, but that now appears unlikely. The first potential rate cut may not occur until the latter half of the year.
Further eroding consumer confidence are Trump’s tariff policies. The President has announced a 25% tariff on Canadian and Mexican imports, set to take effect on March 3. Besides, he has already imposed a 10% tariff on multiple Chinese products and now plans another 10% levy.
Trump has also declared a 25% tariff on goods imported from the European Union, scheduled to be implemented in the coming months. These aggressive trade measures have heightened fears of a global trade war, which could further erode consumer sentiment and contribute to increased market turbulence.
3 Best Choices
We have identified three large-cap value mutual funds that have demonstrated impressive annualized returns over 3-year and 5-year periods. These funds also hold a Zacks Mutual Fund Rank of #1 (Strong Buy), require an initial investment of no more than $5,000 and have a low expense ratio.
The question here is: why should investors consider mutual funds? Reduced transaction costs and diversification of portfolio without several commission charges that are associated with stock purchases are primarily why one should be parking money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).
Northern Income Equity fund seeks to provide a high level of current income with long-term capital appreciation as a secondary objective. NOIEX’s approach is to identify the securities of companies that generate high current yields and offer prospects for growth and possible capital appreciation. In pursuing its objective, the Northern Income Equity fund invests at least 65% of its total assets in a mix of income-producing equity securities, with no limit on the fund's ability to invest in non-investment grade fixed income and convertible debt securities.
NOIEX’s 3-year and 5-year annualized returns are 11.3% and 14%, respectively. Northern Income Equity fund has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.49%.
To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.
Dodge & Cox Stock I fund seeks long-term growth of principal and income. A secondary objective is to achieve a reasonable current income. DODGX invests primarily in a broadly diversified portfolio of common stocks.
DODGX’s 3-year and 5-year annualized returns are 9.4% and 14.1%, respectively. Dodge & Cox Stock I fund has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.51%.
To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.
TIAA-CREF Large Cap Value Fund invests the majority of its assets in bonds, including different types of fixed-income securities. The fund’s portfolio is divided into two segments. The first segment holds more than 70% of TCLCX’s assets that are invested in a wide variety of fixed-income securities and investment-grade bonds. The second segment has around 30% of its assets invested in fixed-income debt securities with special qualities.
TIAA-CREF Large Cap Value Fund has 3-year and 5-year annualized returns of 9.4% and 11.4%, respectively. TCLCX has an annual expense ratio of 0.70%. TCLCX has a Zacks Mutual Fund Rank #1.
To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.
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