Market Update: March 10, 2025

Economic data included a lackluster but positive ISM manufacturing report, while ISM services again improved further into expansion. The employment situation report for February came in decently, within expectations, although the unemployment rate also rose slightly.

Equities were mixed, with another week of declines in the U.S., while foreign stocks (especially Europe) rediscovering positive momentum. Bonds fell back as interest inched back upward. Commodities were mixed, with gains in metals offset by a decline in crude oil.

U.S. stocks suffered a third straight negative week, with negative sentiment driven by the uncertainty around the administration’s back-and-forth tariff policy announcements—the key theme that appears to be driving market movements as of late. By sector, only health care ended the week with a small gain, while all other sectors saw negative results—declines of several percent in financials (not helped by a flatter yield curve), consumer discretionary (Tesla, but also concern in other retailers about a weakening consumer), and energy (following weaker oil prices).

Early in the week, the formal implementation of tariffs on Canada, Mexico, and China pulled down equity sentiment, with concern over uncertain economic growth and inflation ramifications. By Wed., the President granted a one-month reprieve on tariffs for autos manufactured in those two countries (which are those of U.S. automakers), helping markets rebound and proving to be an example of the North American inter-country dependencies in several industries. This extension was allegedly per request of the U.S. ‘Big 3’— Stellantis, Ford, and GM—upon reports that car prices could rise by $5-10k per vehicle due to the tariffs. By Friday, tariffs on both Canada and Mexico for goods were covered by the USMCA were postponed (again), but the back-and-forth risk has failed to generate a celebratory tone. The President and Commerce Secretary Lutnick have noted that several tariffs will be announced on Apr. 2, in what will be called “the big transaction.” One piece of good news is that the planned reciprocal tariffs may end up having a smaller-than-expected impact, perhaps raising overall tariff rates by only a few percent on a trade-weighted basis—based on some economic analysis. However, higher tariffs on autos and critical imports (pharma, semiconductors, electronics, metals) could raise the overall tariff rate significantly higher. While it may seem strange to apply tariffs to critical imports, the goal is to incentivize domestic production and wean reliance on foreign producers. Though, this gets politically trickier, as it could inflict more short-term pain to achieve specific long-term goals.

While the S&P 500 fell as far as -7% from mid-Feb. highs, the growth-heavy NASDAQ fell into an official -10% correction during the week, and the Bloomberg Magnificent 7 Index fell further towards -15%, quickly approaching bear market status. Since there hasn’t been a -10% market correction since mid-2023, the fact we’re seeing one isn’t too surprising, just from a normal cyclical standpoint. Of course it takes a catalyst, so with elevated valuations, there isn’t much room for error when facing uncertain news on the economic/trade front.

Foreign stocks fell slightly in local terms, but moved in a positive direction when helped by the value of the U.S. dollar, which fell over -3% for the week. After that currency translation for U.S. investors, European stocks pulled away further into the lead, with gains of 4% (with strength in Germany) outpacing still-decent gains in Japan, and emerging markets. The ECB cut rates again by a quarter-percent to 2.50%, which also helped with sentiment. While the continued high uncertainty about U.S. trade and defense policy toward Europe kept tensions high, this seems to have also prompted a response of stronger European government cohesion—leading to a greater comfort with stimulus and debt. In response, long-term yields have risen, as increased fiscal spending (primarily in Germany) is assumed to raise economic growth and debt levels overall, and lessening the need for a long stretch of ECB cuts. However, the pressure of a trade (‘phenomenal uncertainty’ as the ECB put it) and geopolitical uncertainty nearby with Ukraine remains high. Elsewhere, the China’s National People’s Congress began their meetings last week, setting the country’s GDP growth target at 5%, as expected, and announcing more forthcoming stimulus intended to boost consumption—one of their primary goals for the coming year.

Specifically in Germany, hopes for substantial fiscal easing have risen after their recent election. In fact, this was via a change in economic attitude thought to be one of the most significant policy shifts since West and East Germany were reunified in 1990. Proposed legislation would ease a conservative balanced budget approach over the last several decades by allowing more debt and spending upwards of up to €1 trillion over 10 years for infrastructure, in addition to more for defense, and allow states to run small deficits as well. Some of this was driven by the U.S. insistence on Europe contributing more funds to its own regional security, but also several years of economic stagnation compared to the rest of Europe, which has begun to the corner toward growth. This change in approach has led to an improvement in sentiment, with hopes of allowing the continent’s largest economy to catch up a bit. (Ironically, equities in Spain and Italy, which suffered from structural, debt, and growth woes not that long ago, have outperformed the S&P 500 since year-end 2022. This is another reminder that current economic conditions and stock results don’t always go together, with improvement more important than level.)

Bonds fell back overall as yields ticked higher. Contrary to the start of the year, the 10-year U.S. Treasury note has retreated from earlier highs, with the 10y-3m again slightly inverted (the 10y-2y segment remains positive). High yield and senior bank loans slightly outperformed investment grade debt in the U.S. Foreign bonds were mixed, with the decline in the dollar pushing unhedged local currency bonds higher by a few percent over hedged, the latter of which fell back as German yields rose substantially (by nearly 0.5% in a few days) along with the earlier-mentioned news.

Commodities were mixed for the week, with gains in both industrial and precious metals, offset by declines in energy and agriculture. Crude oil fell by nearly -4% last week to $67/barrel, as the OPEC+ group decided to gradually increase output starting in April, in addition to the tariff policy announcements that continued to create uncertainty about upcoming expectations for energy demand. Natural gas prices spiked again upon another bout of late-winter cold weather and summer supply concerns.

The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness.  All information and opinions expressed are subject to change without notice.  Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product.