Takeaways
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Stocks have come under pressure as tariff talk heats up
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Recession fears have also increased, making executives’ decisions all the more important
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After a slew of generally successful spinoffs elsewhere in the market, Honeywell looks to split into three units
March came in like a lion, much to the bears’ delight. The S&P 500® plunged from its February 19 high on the heels of stern tariff talk and phrases like “a little bit of an adjustment period” from President Trump and the economy entering a “detox period,” as Treasury Secretary Bessent said last week.1
While tariffs were certainly a cornerstone of Trump’s 2024 campaign, the assumption was that his other pro-business policies—loosening regulation, lowering taxes, and filling his cabinet with free-market advocates—would overshadow any negative impacts from import duties. Moreover, the president going after Mexico, Canada, and Europe so aggressively was not anticipated, as China was generally seen as the primary trade-war “enemy”.
The political chess game has seemingly never been so intertwined with markets. Investors have come to expect daily updates from the White House on tariff tweaks, while members of Trump’s cabinet make news in TV interviews, ultimately driving price action.
2025 Turns Red, Particularly for the Mag 7
Coming into this week, stocks had been working lower, led by losses among the Magnificent Seven. Monday’s steep selloff included a VIX spike to almost 30 as Tesla (TSLA) had its worst session since September 2020, at one point falling 56% from its all-time high less than three months ago. NVIDIA (NVDA) was off by more than 30% from its peak, and the other Mag 7 stocks were in drawdowns of 18% or more (sans Apple (AAPL)) last Monday night.
It has the feel of both late 2018 and the first half of 2022 all over again. For some once-high-flying-momentum stocks, you might even draw parallels to February-March 2020 in terms of the speed and magnitude of losses.
International Alpha
2025 has underscored the value of going global, though. Low-P/E nations like Germany, Spain, Italy, and France have posted impressive gains year to date. As of Tuesday, the euro (EUR) trades at $1.09 against the greenback (USD), and fiscal expansion is now seen in the Euro Area while the US perhaps undergoes austerity, care of DOGE amongst other factors.
Can AI Get Its Groove Back?
The macro backdrop is stark. Earnings season is over, key macro data is on tap, and the March Fed meeting comes closer into view. Conference season is also active—we’ll see if some shine returns to the AI trade next week at NVIDIA’s GTC AI event and Game Developer’s Conference (anything to distract investors from tariff chatter).
Who Knows...
With so much policy uncertainty, maybe the best thing for a CEO to do is just focus on their business and maximizing shareholder value rather than trying to predict tariff policy. In a CNBC interview last week, Brown-Forman CEO, Lawson Whiting, told Carl Quintanilla and Sara Eisen, “Look, I don’t know any more than you all know. That’s what’s difficult about this... Every day it seems like the story changes.”2
Getting Down to Business with Spinoffs
One way to potentially boost value is by re-jiggering the corporate structure. A spinoff happens when a parent company separates a business unit into a standalone entity, and it commonly involves distributing shares of a new company to existing shareholders. Spins are strategic moves to boost total value, allowing the new firm to focus on its specialization, and hopefully unlock hidden value. The parent company may benefit similarly as it can return to its roots.
We’ve seen successful spinoffs in recent years. The most prominent being General Electric when it spun out into three businesses: GE Aerospace (GE), GE Healthcare (GEHC), and GE Vernova (GEV).3
GE Aerospace, the parent, has performed very well since the spinoff initiatives began some three years ago, soaring more than 400% from its September 2022 low to its high last month. GEHC steadily rallied from its December 2022 IPO through today, returning better than 40%. The wild child is GE Vernova, an energy-focused firm in the Industrials sector, which had more than doubled in its first 10 months of trading, before dropping from $447 in late January (after China’s DeepSeek AI announcement)4 to $270 earlier this week.
Kellanova (K), Johnson & Johnson (JNJ), Baxter International (BAX), Danaher (DHR), and 3M (MMM) have all completed spins in the last three years. The latest blue chip to try its hand at uncovering shareholder value via this corporation action is Honeywell (HON).
Honeywell’s Plan
Like GE, Honeywell is a conglomerate in the Industrials sector. According to Wall Street Horizon data, the Charlotte-based $139 billion market cap company intends to split into three entities: Honeywell Automation, Honeywell Aerospace, and an already-in-motion spinoff of its Advanced Materials division. It aims to streamline operations and sharpen its focus, increasing shareholder value.
On February 6, Honeywell announced its intent to separate Automation and Aerospace. The move, according to the firm, enables the creation of three industry-leading companies. Per the press release, Honeywell Automation will be a pure play automation leader with global scale and a vast installed base and Honeywell Aerospace will be a premier technology and systems provider enabling the future of aviation globally. Advanced Materials, previously announced to be spun, will aim to be a leading provider of sustainability-focused specialty chemicals and materials. The separation of Automation and Aerospace is to be completed in the second half of 2026.5
Honeywell hopes for a sweeter time ahead considering that its shares have underperformed in both the Industrials sector and S&P 500 since late 2022. The stock has been about flat since the bull market’s early innings, losing more than 30 percentage points to its sector and the US large cap index.
The Bottom Line
It’s difficult to predict how the rest of the year unfolds, but investors should be on the lookout for strategic corporate actions that can work no matter what goes on policy-wise. Spinoffs have shown to be a potentially lucrative tool when used effectively. The focus spinoffs can deliver, and ensuing shareholder returns, could be quite appealing as the macro path turns rockier.
1 REMARKS BY PRESIDENT TRUMP IN JOINT ADDRESS TO CONGRESS, The White House, March 6, 2025, https://www.whitehouse.gov
2 Brown-Forman Posts Q3 EPS Beat, BlueSky, Carl Quintanilla, March 6, 2025, https://bsky.app
3 GE Board of Directors Approves Spin-Off of GE Vernova; GE Vernova and GE Aerospace to Launch April 2, 2024, https://www.ge.com
4 GE Vernova Inc. (GEV) Stock Drops 15% Amid DeepSeek AI Concerns, TD Cowen Maintains ‘Buy’ Rating Despite Lower Electricity Demand Fears, Yahoo Finance, Ghazal Ahmen, January 29, 2025, https://finance.yahoo.com
5 HONEYWELL ANNOUNCES INTENT TO SEPARATE AUTOMATION AND AEROSPACE, ENABLING THE CREATION OF THREE INDUSTRY-LEADING COMPANIES, PR Newswires, Honeywell, February 6, 2025, https://www.prnewswire.com
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