Weekly Market Update – March 7, 2025

Quick Takes

• The S&P 500 Index posted its worst weekly performance since September 2024, falling -3.1% last week. It wasn’t alone in its slump as the tech-heavy Nasdaq Composite, the S&P MidCap 400 Index, and small cap Russell 2000 Index also all fell by more than -3%.
• Tariff uncertainties, mixed economic data, and unfavorable seasonality weighed on stocks throughout the week. But looking ahead, the March and April two-month period has historically been the second best two-month period, trailing only November to December.
• Bonds yields ended their 7-week descent, with the benchmark 10-year U.S. Treasury yield rising +9 basis points to finish the week at 4.30%. As a result, the Bloomberg U.S. Aggregate Bond Index also ended its 7-week win streak, slipping -0.6% last week.

Source: Bloomberg. Data as of March 7, 2025.
Price Returns for Equity, Total Returns for Bonds.
* The term basis points (bps) refers to a common unit of measure for interest rates and other percentages in finance. One basis point is equal to 0.01%. Bond prices and bond yields are inversely related. As the price of a bond goes up, the yield decreases.

Trade Turbulence and Poor Seasonality Sends Stocks Lower

The S&P 500 Index posted its worst weekly performance since early September 2024, falling -3.1% last week. It wasn’t just U.S. large cap stocks that slumped, the tech-heavy Nasdaq Composite, the S&P MidCap 400 Index, and small cap Russell 2000 Index all fell by more than -3%.  Tariff uncertainties, mixed economic data, and unfavorable seasonality weighed on stocks throughout the week. The second half of February through the first half of March tend to be a seasonally weak period of stocks historically, particularly for post-election years like 2025. Along with September, February is the only other month of the year where the S&P 500 has average declines over the long term. In post-election years that weakness tends to carry through the first half of March. But when looking ahead to the full March and April months, seasonal tailwinds tend to prevail. Since World War II (WWII), the March and April two-month period has been the second best two-month period of the year, trailing only November to December.

But the post-election headwinds for mid-February to mid-March certainly seem to be playing out. And U.S. President Donald Trump’s back-and-forth over tariffs against Canada and Mexico have added to the weak markets, introducing uncertainty and confusion for traders and business managements. Since hitting a record high on February 19, the S&P 500 has now given up all the gains following Trump’s election victory in November. Tuesday marked the deadline for Trump’s previously announced tariffs of 25% on Canadian and Mexican imports, along with an additional 10% on Chinese imports, but later in the week the Trump administration announced a slew of exemptions and delays for the tariffs.  

Regarding economic data, tariff impacts were conspicuous in January’s trade numbers with a huge jump in imports as companies tried to front-run tariff implementation. It was the primary driver in the trade deficit widening +34% to a record -$131.4 billion.

Notwithstanding the elevated levels of trade policy uncertainty, the U.S. economy continues to show health, with Friday’s February Employment Situation report showing solid job growth while inflation slows closer to the Fed’s 2% target. February nonfarm payrolls were slightly less than expected, but private sector jobs held up well while federal employment took a hit from the Trump administration’s Department of Government Efficiency (DOGE) push for a lighter and more productive public sector labor force. Overall, markets seemed relieved with the release of February’s jobs report and that the labor market is resilient with wages keeping up with inflation but not adding excessive inflation pressure. Even though the unemployment rate ticked up to 4.1% from 4.0%, hiring in sectors like healthcare, finance, and warehousing and transportation appeared to pick up in February. 

For now, Federal Reserve Chairman Jerome Powell seems to be comfortable with the balance between growth and inflation. On Friday, at the 2025 U.S. Monetary Policy Forum, Powell said the economy was in a “good place” despite recent lackluster economic reports and the tariff-related uncertainty, and that the Fed is carefully monitoring the impacts of the Trump administration’s policy changes. Earlier in the week, the widely watched Institute for Supply Management’s (ISM) Purchasing Managers’ Index (PMI) for both the manufacturing and services sector of the economy continued to point to economic expansion. On Wednesday, the Commerce Department also released better-than-expected factory orders, durable goods, and business spending for January. 

Overseas, stocks continued their recent outperformance over their U.S. counterparts. Developed market international stocks (as measured by the MSCI EAFE Index) were up +3.0% last week, their biggest week of excess performance over the S&P 500 since March 2020. It’s the seventh consecutive week that the MSCI EAFE has outperformed the S&P 500.  Emerging market stocks (the MSCI Emerging Markets Index) also had good relative performance, rising +2.9% for the week.  

In the world of bonds, yields ended their 7-week descent, with the benchmark 10-year U.S. Treasury yield rising +9 basis points to finish the week at 4.30%. The yield on the 2-year Treasury note inched up +1 basis point to finish the week at 4.00%. As a result, the Bloomberg U.S. Aggregate Bond Index also ended its 7-week win streak, slipping -0.6% for the week. Non-U.S. bonds, as measured by the Bloomberg Global Aggregate ex U.S. Bond Index, stopped a two-week slide with a +1.4% gain, its best week since January 24. Non-U.S. stocks and bonds got a big tailwind from the -3.5% drop the U.S. Dollar Index suffered last week. That was the biggest weekly decline for the dollar since November 2022.

The Week Ahead

It will be a relatively light week of economic data, but it includes some key reports like consumer and wholesale inflation on Tuesday (CPI) and Wednesday (PPI), respectively. The week’s data kicks off with the NFIB Small Business Optimism report on Tuesday. Consumer Sentiment from the University of Michigan will wrap up the week on Friday. 

Fourth quarter earnings season is about over with 495 of the S&P 500 companies already reported. Reports this week include Adobe, Crown Castle, Dick’s Sporting Goods, DocuSign, Dollar General, Kohl’s, Ulta Beauty and Vail Resorts.

Chart of the Week

The monthly Employment Situation report showed that new Non-Farm Payrolls (NFP) totaled 151,000 in February, short of Wall Street forecasts for 160,000 payrolls, but up from 125,000 the prior month (revised down from 143,000). December was revised higher by +16,000 to 323,000. According to the Bureau of Labor Statistics (BLS) report, Health Care led the job creation with 52,000 jobs, Financial Services added 21,000 new jobs, Transportation and Warehousing created 18,000, and Social Assistance saw 11,000 new payrolls.  Retail grew by 34,000 new positions, and the Government added 32,000 new positions. Health Care and Government were among the top contributors to December’s gains as well. The Unemployment Rate inched up to +4.1% from +4.0% where it was expected to stay. The unemployment rate had been as low as +3.4% just 16 months ago and has eased off its three-year peak of +4.3% reached in July. Wages grew in line with expectations with Average Hourly Earnings (AHE) increasing to +0.3% from the prior month’s +0.4% rate. Year-over-year, AHE were up +4.0%, up from the prior month, but only after that was revised lower to 3.9% from +4.1%. The Fed would like to see wage growth slow to around +3% annually or less, a level it sees as consistent with low inflation. Average Weekly Hours worked was down slightly to 34.1, below expectations for 34.3 but up from the 34.2 the prior month (revised down from 34.3). Labor-Force Participation slipped to 62.4% from 62.6% where it was expected to remain.  The February report comes amid efforts from Elon Musk’s Department of Government Efficiency (DOGE) to pare down the federal government, starting with buyout incentives and including mass layoffs that have impacted multiple departments. Those reductions likely won’t be fully felt until the coming months. However, federal government employment did decline by -10,000 in February though government payrolls overall increased by +11,000, the BLS said. Many of the DOGE-related layoffs happened after the BLS survey reporting period and won’t be included until the March report. Outplacement firm Challenger, Gray & Christmas reported earlier this week that announced layoffs by DOGE totaled more than 62,000. Overall, the February Employment Situation report showed that the labor market is stable.

Monthly Job Creation in the U.S.

January 2022 – February 2025

Source: U.S. Bureau of Labor Statistics via FRED, CNBC.

Did You Know?

INAUGURATION ROTATION – Since the inauguration of President Donald Trump, the noncyclical Consumer Staples sector has rallied +7.1% (through 3/7), the best performer of the eleven S&P 500 sectors. Over the same span, Consumer Discretionary has been the worst performing sector with a decline of -12.9%. Over the same period the S&P 500 is down -3.8%. (Source: Bloomberg)

RECORD UNCERTAINTY – The Global Economic Policy Uncertainty Index jumped to a record high in January, exceeding its previous high from May 2020. The index has soared +97% in the three months since November’s election—the largest increase since the three months after President Trump was elected the first time in 2016. (Source: Economic Policy Uncertainty)

SPRING FORWARD – Daylight Saving Time (DST) fell this past weekend on March 9. While DST was originally intended to decrease the need for evening lighting and save electricity, a National Bureau of Economic Research (NBER) study found that DST results in a +1% increase in overall electricity demand due to increased demand for heating and cooling. (Source: NBER)

This Week in History

AND THAT’S THE WAY IT WAS – On March 6, 1981, Walter Cronkite signed off as anchor of “CBS Evening News.” Dubbed the most trusted man in America, he held the job for 19 years. Cronkite’s most famous broadcasts include the 1963 assassination of President John F. Kennedy and the 1969 moon landing. Cronkite dropped out of college to become a journalist, spent some time doing news and sports at radio stations, and joined CBS in 1950. “And that’s the way it is” would become his signature signoff. 

Economic Review

• The February Institute for Supply Management’s (ISM) Manufacturing PMI slipped from a 27-month high in January but remained in expansion territory, coming in at 50.3% from 50.9% in January. That was slightly below expectations for a 50.7% reading. The manufacturing PMI had been in contraction territory for two years (levels below 50 indicate contracting economic activity) until January’s reading. The index of New Orders, a sign of future demand, dropped to 48.6% from 55.1%, which was the highest level since the middle of 2022. The Production barometer slid -1.8 points to 50.7%. Employment declined -2.7 points to 47.6%. On the negative side, the Prices Paid index, a measure of inflation, moved up -7.5 points to 62.4%, a 33-month high. President Donald Trump’s tariff talk has renewed uncertainty as businesses try to plan for the potential enactment of tariffs. Meanwhile, the Institute for Supply Management’s (ISM) Services PMI climbed to 53.5% in February, up from an unrevised 52.8% the previous month, and well above expectations for 52.5%. Service-oriented companies, such as restaurants and retailers, employ the majority of Americans. The New Orders index rose +0.9 points to 52.2%. The Employment index rose +1.6 points to 53.9%, the highest level since the end of 2021. For services inflation, the Prices Paid index rose +2.2 points up to 62.6%, its third straight month above 60%. The services side of the economy has held up the U.S. for the past few years and remains the engine of growth for the U.S. economy.
• Like the competing ISM report, the final S&P Global U.S. Manufacturing Purchasing Managers Index (PMI) remained in expansion territory in February, rising to 52.7 from a 51.6 preliminary ‘flash’ estimate two weeks ago, and up from the prior month’s 51.2 reading. It was the best rate of growth since June 2022 (levels above 50 indicate economic expansion, while levels below 50 indicate contraction). The strength came primarily from gains in both New Orders and Output. Production growth was the fastest since May 2022. On the negative side, cost pressures intensified in February as vendors were reportedly adjusting their price lists ahead of a wider range of trade tariffs being imposed on goods and services. Input Price inflation was the steepest since November 2022. Output Prices also accelerated, for a fourth successive month, hitting its highest level in two years. Unlike the competing ISM report, the S&P Global U.S. Services PMI cooled in February, although staying in expansion territory at 51.0, up from the preliminary reading of 49.7 but down from the prior month’s 52.9. It was the 10th consecutive month of expansion for the service sector, but the rate of expansion was the slowest since November 2023. New Exports declined for a second successive month in February and to the greatest degree since May 2024. Business Confidence showed a steep deterioration, to its lowest since September, dropping well below its long-run trend in February. That said, firms still expect on average activity to rise from present levels in 12 months’ time. Service companies’ Input Prices moved up to the highest level for four months and further above its long-term trend. Output Prices charged rose only modestly overall as efforts to pass on higher input costs to clients were somewhat limited by competitive pressures, weak market demand and market oversupply.
• The Commerce Department reported U.S. Factory Orders increased $9.8 billion or +1.7% to $589.9 billion in January following two consecutive monthly decreases including a -0.6% decrease the prior month (revised up from -0.9%). That was in line with Wall Street expectations. Shipments, up three consecutive months now, increased $2.4 billion or +0.4% to $592.1 billion, following a +0.6% gain the prior month.  Factory Orders Ex-Transportation rose +0.2%, as expected, on the heels of a +0.3% increase in December. Durable Goods Orders for long-lasting items such as televisions, appliances and transportation equipment were up +3.2% following two consecutive monthly declines including a -1.8% drop in December (revised up from -2.2%). They were expected to stay at the preliminary estimate of +3.1% from two weeks ago. The gain was led by a +9.9% spike in transportation equipment orders that was stoked by a +93.9% increase in orders for nondefense aircraft and parts. Durable Goods Orders Excluding Transportation were flat (0.0%), as expected from the same as the preliminary reading, but down from the prior month’s +0.1%. New Orders for Nondefense Capital Goods Excluding Aircraft —also known as Core Capital Goods Orders, a proxy for business spending—jumped +0.8% following a +0.2% increase the prior month. The Inventory-to-Shipments Ratio held steady at 1.46. The key takeaway from the report is that it reflected not only a rebound in orders for nondefense aircraft and parts, but a nice pickup in business spending overall, evidenced by the +0.8% jump in Core Capital Goods Orders.
• U.S. Consumer Credit surged +$18.1 billion in January, above expectations for $14.9 billion, but down from December’s $37.1 billion (revised lower from the initially reported $40.1. billion). That amounts to a +4.3% annual growth rate for the month, down from the +8.7% annualized growth rate the prior month. Growth for revolving credit, such as credit cards, was up +8.2%, down from the prior month’s +18.5% surge. Nonrevolving credit, which tends to be much less volatile than revolving credit and includes auto as well as school loans, rose +3.0% following the prior month’s +5.2% rise. The data from the Federal Reserve is not adjusted for inflation and does not include mortgage loans, which is the largest category of household debt. The bottom line is that there was solid demand for consumer credit at the end of the year despite relatively high interest rates.
• According to the U.S. Bureau of Economic Analysis, the U.S. Trade Deficit widened +34% in January to a record -$131.4 billion from -$98.1 billion the prior month. That was wider than the -$128.8 billion expected. Smaller trade deficits help contribute to economic growth, while larger deficits inhibit growth. Many economists now see negative GDP growth in the first quarter due to the huge drag from the trade sector. Imports rose +10% to $401.2 billion as businesses scrambled to get ahead of new tariffs on overseas goods proposed by the Trump administration. Imports were 23.1% higher than a year ago. Exports rose +1.2% to $269.8 billion. The key takeaway from the report is that efforts to get in front of expected tariff actions drove the huge increase in imports, which will be a drag on Q1-2025 GDP forecasts.
• The Census Bureau reported Wholesale Inventories rose +0.8% to $906.2 billion in January, above expectations of +0.7% from the preliminary estimate prior month’s -0.4% decline. Year-over-Year (YoY) inventories were up +1.2%, matching the preliminary reading and up from the -0.1% annual rate the prior month. That is still well below the typical +4% to +6% annual increase in strong economies. Inventories are goods produced for sale that have not been sold yet. Inventories have only added to GDP growth once in the past five quarters and subtracted -0.2 percentage points from the headline annual increase in GDP ( +2.8% ) for the third quarter. Wholesale Trade Sales fell -1.3%, down from the prior month’s +1.4% (revised higher from +1.0%) and above expectations for +0.5%. Wholesale inventories data isn’t adjusted for inflation. The Inventory-to-Sales Ratio was at 1.33 months, up from 1.31 the prior month but has trended lower for the last year. The ratio reflects how long it would take a company to sell all the goods sitting on warehouse shelves.  
• The Commerce Department reported that Construction Spending slipped -0.2% in January, down from the prior month’s unrevised +0.5%, and shy of expectations for a -0.1% dip. Over the past year, construction spending is up +3.3%, off from the +4.3% annual rate the previous month. Total Private Construction was down -0.2% after a +0.9% rise the month before and total Public Construction was up +0.1% compared to a -0.5% fall the prior month. Private Residential Spending dipped -0.4% month-over-month and private Nonresidential Spending was flat (0.0%). The report showed that single-family construction was up +0.6% and multifamily construction fell -0.7%.
• Weekly MBA Mortgage Applications jumped +20.4% for the week ending February 28 following a -6.4% drop the prior week. The Purchase Index rose +9.1% after inching up +0.2% the prior week. The Refinance Index soared +37.0% following the prior week’s -3.6% drop. The average 30-Year Mortgage Rate slipped to 6.73% from 6. 88% the prior week, the lowest it’s been since December 6.
• Weekly Initial Jobless Claims fell by -21,000 to 221,000 for the week ending March 1, better than expectations for claims of 234,000. The prior week was unrevised. The number of people already collecting unemployment claims (i.e., Continuing Claims) rose by +42,000 to 1,897,000 in the week ending February 28, worse than expectations of 1,874,000 claims. Last week’s reading of 1,862,000 was revised lower to 1,855,000.

Asset Class Performance

Source: Bloomberg.

Asset‐class performance is presented by using market returns from an exchange‐traded fund (ETF) proxy that best represents its respective broad asset class. Returns shown are net of fund fees for and do not necessarily represent performance of specific mutual funds and/or exchange-traded funds recommended by The Retirement Planning Group. The performance of those funds may be substantially different from the performance of the broad asset classes and to proxy ETFs represented here. US Bonds (iShares Core US Aggregate Bond ETF); High‐Yield Bond (iShares iBoxx $ High Yield Corporate Bond ETF); Intl Bonds (SPDR® Bloomberg Barclays International Corporate Bond ETF); Large Growth (iShares Russell 1000 Growth ETF); Large Value (iShares Russell 1000 Value ETF); Mid Growth (iShares Russell Mid-Cap Growth ETF); Mid Value (iShares Russell Mid-Cap Value ETF); Small Growth (iShares Russell 2000 Growth ETF); Small Value (iShares Russell 2000 Value ETF); Intl Equity (iShares MSCI EAFE ETF); Emg Markets (iShares MSCI Emerging Markets ETF); and Real Estate (iShares US Real Estate ETF). The return displayed as “Allocation” is a weighted average of the ETF proxies shown as represented by 30% US Bonds, 5% International Bonds, 5% High Yield Bonds, 10% Large Growth, 10% Large Value, 4% Mid Growth, 4% Mid Value, 2% Small Growth, 2% Small Value, 18% International Stock, 7% Emerging Markets, 3% Real Estate.

* The term basis points (bps) refers to a common unit of measure for interest rates and other percentages in finance. One basis point is equal to 0.01%. Bond prices and bond yields are inversely related. As the price of a bond goes up, the yield decreases.