Weekly Market Update – March 14, 2025

Quick Takes

• The S&P 500 Index started the week with its worst day of the year and finished the week with the best day of 2025, but still lost ground overall for the fourth straight week. The rebound rally on Friday was just one day it entered correction territory on Thursday.
• The NFIB Small Business Optimism Index and the Consumer Sentiment Index both showed trepidation about the erratic trade policy from the Trump administration but better than expected consumer (Consumer Price Index or CPI) and wholesale (Producer Price Index or PPI) inflation helped ease the soft survey data.
• Bonds yields were relatively flat for the week with the benchmark 10-year U.S. Treasury yield rising +1 basis point to finish the week at 4.31%. As a result, the Bloomberg U.S. Aggregate Bond Index was down a barely-negative -0.06% last week.

Source: Bloomberg. Data as of March 14, 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.

Stocks Trade Lower for Fourth Week but End Week Strong

Wall Street tumbled for a fourth straight week, as sentiment on Main Street continued to wane over worries about trade policy and an economic slowdown. That’s the longest weekly losing streak since September 2023. However, favorable consumer and wholesale inflation data helped give investors some confidence to buy the dip on Friday as the market rebounded out of correction territory. The S&P 500 Index posted its worst day of the year to begin the week on Monday but rebounded on Friday with its best day of the year, leaving it down -2.3% for the week, -4.1% for the year, and -8.2% from its recent all-time high on February 19.

Trading was choppy and intensified over the week as U.S. President Donald Trump went back and forth on tariffs with top trading partners with increasingly aggressive rhetoric. The S&P officially entered correction territory on Thursday, defined as -10% pullback from the February record high, the first correction since late 2023. But stocks rallied across the board on Friday for the S&P’s best day since November 6, 2024, as markets attempt to climb another wall of worry even as Friday morning’s Consumer Sentiment Index from the University of Michigan soured for a third month in a row to a 29-month low, primarily on tariff policy uncertainty and inflation worries. But on Wednesday and Thursday, the Consumer Price Index and Producer Price Index, both showed lower than expected inflation. That positive inflation data and Friday’s news that Congress had managed to avoid a government shutdown through at least September seemed to help ignite the rebound to close the week on a positive note. Also possibly removing some of the sense of uncertainty for markets, Ukraine accepted a US-backed 30-day cease-fire agreement, leading the Trump administration to resume military support to Ukraine earlier this week. Russia did not agree to an immediate cease-fire initially, but towards the end of the week productive discussions about a potential settlement appeared, according to President Trump. Further discussions are likely necessary to potentially achieve a resolution, but a path forward is now possible.

Outside the U.S., stocks continued their strong relative performance, beating their U.S. counterparts for an eighth straight week, despite sliding a bit. Developed market international stocks (as measured by the MSCI EAFE Index) were down -1.2% last week. Emerging market stocks (the MSCI Emerging Markets Index) also had good relative performance, slipping -0.8% for the week.  

In the world of bonds, yields inched up for a second straight week, with the benchmark 10-year U.S. Treasury yield rising +1 basis point to finish the week at 4.31%. The yield on the 2-year Treasury note inched up +2 basis points to finish the week at 4.02%. As a result, the Bloomberg U.S. Aggregate Bond Index also slipped for a second straight week, easing -0.06% for the week. Non-U.S. bonds, as measured by the Bloomberg Global Aggregate ex U.S. Bond Index, also fell, losing a modest -0.3%.

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

The week’s economic calendar is a bit busier this week but with no real spotlight reports other than the Federal Open Market Committee (FOM) rate decision on Wednesday afternoon. The markets are pricing expectations that the Federal Reserve will keep rates steady for a second straight meeting at 4.50%, but investors will be focused on the commentary from Fed Chairman Powell and on updated economic projections. Those so-called “dot plots” show the FOMC’s expectations for inflation, growth, unemployment, and interest rates and may help indicate recent tariff implementations have materially shifted the outlook for monetary policy. Housing is one of the most Fed-sensitive segments of the market, and housing reports are prevalent this week with Homebuilder Confidence (NAHM Housing Market Index) on Monday, Building Permits and Housing Starts on Tuesday, weekly Mortgage Applications on Wednesday and Existing Home Sales on Thursday. No economic reports are scheduled for Friday. 

Earnings season for the fourth quarter is all but done, save for a few stragglers. 498 of the S&P 500 companies have reported but Lululemon and Dollar Tree will complete the earnings cycle this week. Earnings are currently growing at a +13.1% annualized rate, the best quarter in years and nearly double the +6.6% growth rate for the prior quarter. Outside the S&P 500, earnings reports include General Mills, Super Micro, Darden Restaurants, and Micron. Earnings for Q1-2025 are also trickling in already, and this week investors will receive quarterly results from two heavyweight names in the world’s largest shoe company Nike and global economic bellwether FedEx.

Chart of the Week

The rate of inflation for consumer goods and services unexpectedly slowed in February. The headline Consumer Price Index (CPI) was up just +0.2% for the month, the slowest monthly rate in four months. That was down from an unrevised +0.5% the prior month, and below the +0.3% that Wall Street was forecasting.  Year-over-year (YoY), CPI decelerated to +2.8%, versus +3.0% the prior month and below expectations for a +2.9% annual rate. Core CPI, which excludes the more volatile food and energy prices, also slowed to +0.2% for the month, down from an unrevised +0.4% the prior month, and below expectations for a +0.3% rise. YoY Core CPI was +3.1%, down from an unrevised +3.3% the prior month and below expectations for +3.2% annual rate. The Federal Reserve and Wall Street generally considers the Core CPI as a better predictor of future inflation. The deceleration in inflation was broad based across goods and services. The BLS said nearly half of the advance in the overall CPI was due to Shelter, which is about one-third of the CPI weighting. But it also decelerated from the prior month, to +0.3% month-over-month from +0.4% the prior month. YoY Shelter slowed to +4.2% from +4.4% the prior month. Energy prices slowed considerably, up just +0.2% in February compared to +1.1% in January and +2.4% in December. Airfares fell -4%, the most since June. Food inflation slowed over the month, to +0.2% from +0.4% in January, even though the price of Eggs jumped by +10.4%. Egg prices have made headlines as a result of their staggering +58.8% year-over-year surge. As shown in the chart below, excluding Eggs, the rate of inflation for Groceries fell the most since 2020 in February. Egg prices have fallen sharply so far in March, about -15% in the first week of the month according to a report by USDA. 

Price Relief at U.S. Grocery Stores

Costs of groceries excluding eggs fall most since 2020

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

Did You Know?

HAVE PRICES PEAKED? – The latest home price data from S&P/Case Shiller showed falling home prices from November to December in 14 of 20 major metros, with Tampa seeing the biggest drop at -1%. Home prices nationally are down just -1% from all-time highs, but areas like San Francisco, Denver, and Seattle are down -5% or worse. (Source: S&P CoreLogic)

UNHEALTHY DEBT  – 12% of Americans had to borrow money to cover health care expenses last year. Americans under 50 were more than twice as likely (roughly 20%) to borrow money than those aged 50 to 64 (9%). Of those who had to borrow to cover health care costs, 58% borrowed at least $500. (Source: Gallup)

VALUATION RELIEF – The S&P 500’s trailing 12-month price-to-earnings (P/E) ratio saw its biggest nine- trading-day drop in three years when it fell three full points from 27.7 down to 24.7 from 2/19 to 3/4. At 24.7, the S&P’s P/E remains more than four points above its long-term average of 20.2 since 1990. (Source: Bespoke)

This Week in History

COVID CRASH – The S&P 500 Index officially entered “correction” territory on Thursday March 13 (a correction is typically defined as a -10% drawdown from a prior high). But almost five years earlier to the day, on March 12, 2020, the S&P 500 nearly “corrected” in a single day, falling -9.5%. It was one of the worst single day losses in the history of the stock market and helps put the moderate correction the market is currently experiencing in context. Corrections of -10% or more typically occur about once a year but the prior occurrence was last in October 2023.

Economic Review

• Like consumer inflation, wholesale inflation was also slower than expected in February. The headline Producer Price Index (PPI) was flat (0.0%) for the month, well below expectations for +0.03% and the prior month’s +0.6% (revised higher from +0.4%). Year-over-year (YoY) PPI increased at a +3.2% rate, also below expectations, which was for a +3.3% increase. That was down from the prior month’s +3.7% annual rate (which was revised higher from the original release of +3.5%). Core PPI, which strips out volatile food and energy costs, actually fell -0.1% in February, better than expectations for a +0.3% rise and down sharply from +0.5% the prior month (revised higher from +0.3%). YoY Core PPI was up +3.4%, below expectations for +3.5% and down from the prior month’s +3.8% annual rate (revised up from +3.6%). Goods prices were up +0.3% in February, down from +0.6% from the prior month. Energy prices were down -1.2% for the month. The index for Services slipped to +0.2% in February, down from +0.6% the prior month. The February PPI may be the last report before the Trump administration’s new tariffs are enacted and future reports will be scrutinized for tariff-related impacts. 
• The Job Openings Labor Turnover Survey (JOLTS) showed Job Openings rise slightly in January to 7.770 million from 7.508 million the prior month (revised down from 7.900 million). That was well above expectations for 7.600 million. Job Openings peaked at 12 million in 2022, but companies have since cut back on hiring. Job openings are an indication of the health of the labor market and the broader U.S. economy. The ratio of Job Openings to Unemployed Workers was 1.13, up slightly from 1.09 the prior month and is down from a peak of 2.0 in 2022 and at the prepandemic level the Fed wants to see it at. The Number of People Quitting Jobs was 3.26 million, up from 3.1 million the prior month. The record was 4.5 million job quitters in late 2021. The Quits Rate was 2.1%, up from 1.9% the prior month. People tend to quit less often when the economy softens and jobs become harder to find. The Layoffs Rate dipped to 1.0% from 1.1%, where it was the prior three months. The Hiring Rate was unchanged at 3.4%. 
• The National Federation of Independent Business (NFIB) reported that their Small Business Optimism Index fell to 100.7 from an unrevised 102.8 the prior month, putting it -4.4 points from its December peak, which was the highest level since October 2018. Seven of the 10 component indexes declined, and three improved. The improvements came from the Earnings Trend and Expected Credit Conditions components, which each rose by a point, as well as the Current Job Openings component that improved +3 points. Though outnumbered by the declining components, those are important improvements because they are so contrary to recessionary conditions. The biggest decliner for the month, however, was Expect Economy to Improve, which fell -10 points but still remains the second highest component with a net +37% (trailing only Current Job Openings, with a net +38%). The separately produced Uncertainty Index that is released with the Small Business Index rose +4 points to 104, following the prior month’s +14 point surge, now the second highest reading on record. It is still shy of the record high of 110 in November, but a reflection of the trade uncertainty surrounding the Trump administration tariff announcements. “Uncertainty is high and rising on Main Street and for many reasons. Those small business owners expecting better business conditions in the next six months dropped and the percent viewing the current period as a good time to expand fell but remains well above where it was in the fall,” said NFIB Chief Economist Bill Dunkelberg.
• The preliminary reading of the University of Michigan Consumer Sentiment Index fell to a 29-month low of 57.8 for March from a 64.7 final reading the prior month and was well below expectations for 63.0. The results were driven by improved conditions for buying Durable Goods. The Current Economic Conditions component fell to 63.5 from the prior month’s 65.7 and was below expectations for a 64.4 reading. The Consumer Expectations component sank to 64.2, the lowest since mid-2022, and down from 64.0 and was short of expectations for 63.0. One-year inflation expectations jumped to +4.9% from +4.3% which is where it was expected to remain. 5-10 year inflation expectations increased to +3.9% from 3.5% the prior month and was expected to dip to 3.4%. “Many consumers cited the high level of uncertainty around policy and other economic factors,” said Joanne Hsu, director of the survey. “Frequent gyrations in economic policies make it very difficult for consumers to plan for the future, regardless of one’s policy preferences.”
• U.S. Household Net Worth surged to another record high in the fourth quarter fueled by gains in stock prices that were near all-time highs at the end of the year. Wealth rose $164 billion to $169.4 trillion following a $4.82 trillion gain in the third quarter (revised up from $4.77 trillion). The overall gain was restrained by a decline in the value of real estate. Household Liabilities slipped slightly to $20.79 trillion from $20.85 trillion the prior quarter. As a result, the Household Debt-to-Asset ratio fell to 10.9%, the lowest level since 1973. Deposits held by households and nonprofit organizations, which includes savings and checking accounts and money market funds, rose by $578 billion — the most since 2021, to a record $19.4 trillion.
• The U.S. Treasury Department recorded a Federal Budget Deficit of $307.0 billion in February, compared to +$296.3 billion the same month last year, but slightly under expectations for a -$308.0 billion shortfall. Receipts were $296.4 billion, up +9.3% from the year earlier, while Outlays were $603.4 billion, a +6.4% rise. The increase in spending was largely due to Medicare and Social Security payments, which more than offset the largest source of receipts which was Individual Income Taxes and Social Insurance & Retirement receipts.  The cumulative budget deficit for the first five months of fiscal 2025 has widened to -$1.147 trillion, 38% higher than in the same period in fiscal 2024. The Treasury Budget data are not seasonally adjusted so the current month cannot be compared to the prior month, but rather needs to be compared to the year earlier data. 
• Weekly MBA Mortgage Applications were up +11.2% for the week ending March 7 following a +20.4% surge the prior week. The Purchase Index rose +7.0% after a +9.1% jump the prior week. The Refinance Index gained +16.2% after soaring +37.0% the prior week. The average 30-Year Mortgage Rate slipped to 6.67% from 6.73% the prior week, the sixth straight weekly decline and the lowest it’s been since December 6.
• Weekly Initial Jobless Claims fell by -2,000 to 220,000 for the week ending March 8, better than expectations for claims of 225,000. The prior week was revised higher by 1,000. The number of people already collecting unemployment claims (i.e., Continuing Claims) fell by -27,000 to 1,870,000 in the week ending March 1, better than expectations for 1,888,000 claims. Last week’s reading was unrevised.

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.