Market Update: March 17, 2025
Economic data included consumer and producer price inflation that came in a bit cooler, and better than expected, although the trend remains above target. Jobless claims fell, despite stress about federal layoffs and carryover to the private sector. A low point was consumer sentiment, now showing bipartisan distress, along with heightened inflation expectations.
Equities fell again last week around the world, with continued tariff uncertainty. Bonds were little changed, with governments outperforming corporates. Commodities were mixed, with gains in metals and little change in crude oil.
U.S. stocks were down for the fourth straight week, having started negatively out of the gate, with the S&P 500 down nearly -3% on Monday. This was as investors absorbed the possibility for additional and sustained tariffs, in addition to signs of a slowing economy (with a major investment bank lowering their 2025 estimate again, to just below-trend GDP) and Friday representing the debt ceiling deadline for ‘extraordinary measures’ (behind-the-scenes accounting shifts) after the debt limit was hit in January. Taken as a whole, the underlying worry is that the administration’s policies are causing more harm than expected. In a media interview the prior weekend, the President referred to the current situation as “a period of transition” and refused to rule out a near-term recession, noting that the stock market isn’t something that should be watched as a gauge of policy success, which was obviously not reassuring to many investors (who tend to watch the stock market). After some back and forth on Canadian steel and aluminum imports, a cooler-than-expected CPI report helped sentiment by mid-week, although volatility about the end game for tariffs continued. To end the week, it appeared the chances of a U.S. government shutdown had fallen, removing one element of uncertainty from investors’ minds (although shutdowns have tended to be non-events for the stock market).
By sector, energy and utilities saw the only gains for the week, while declines were most pronounced in consumer discretionary (across the board, but especially Tesla, which has suffered some politically-driven pushback) and communications services. Real estate also fell a few percent, along with some concerns about the economy.
During the week, the S&P 500 reached official -10% market correction territory. Corrections can be a self-fulfilling prophecy at times, once negative momentum begins, but the magnitude and stopping point has been historically based on the severity of the underlying economic situation in most cases. As usual, it’s divided the future path into two camps—recession or no recession. Many mainstream economists agree that current underlying conditions remain healthy, with recent market volatility a symptom of trade policy uncertainty (and high starting valuations for growth stocks) more than a problem of a weakening foundation. In fact, there have been 12 S&P 500 corrections of -10% since 1990 without a recession. This can be seen most directly in the bond market, where the lack of significant spread widening points to a similar lack of concern about fundamentals. Normally, in more dramatically deteriorating conditions, credit spreads have tended to widen in conjunction with stock market weakness.
Foreign stocks were also down for the week, albeit to a lesser degree than the U.S., with the sharpest drops in Europe of only about a percent. The negative components were related to possible trade effects with the U.S., although hopes for a Ukraine-Russia ceasefire persist, in addition to assumed positive effects from fiscal stimulus in Germany. However, the uncertainty yet also stronger growth cast doubt about another ECB rate cut in April.
Bonds were flattish last week, along with little change in U.S. Treasury yields. Corporates underperformed, with credit spreads widening, along with weakness in risk assets overall, more so in high yield. Foreign developed market bonds were also little changed, with more volatility in emerging market debt.
Commodities were mixed for the week, with gains in precious metals and industrial metals, while energy and agriculture fell back. Crude oil prices were little changed last week, remaining at $67/barrel. Gold rose above $3,000/oz. with strong buying due to political policy uncertainty, coupled with strong central bank buying (largely from the Far East, to some degree in efforts to diversify away from financial assets and systems that could be potentially subject to sanctions from the West).
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.