Weekly Market Update – March 21, 2025

Quick Takes

• The major U.S. equity indices all snapped four-week losing streaks. The S&P 500 Index increased +0.5%, the small cap Russell 2000 Index gained +0.6%, and the tech-heavy Nasdaq Composite Index inched up +0.2%.
• The yields for the 10-year and 2-year U.S. Treasury bonds fell -7 basis points over the week and the Bloomberg U.S. Aggregate Bond Index gained +0.5%. However, non-U.S. bonds, as measured by the Bloomberg Global Aggregate ex U.S. Bond Index, fell -0.1%.   
• The highlight of the week’s economic calendar came on Wednesday as the Federal Reserve concluded its March monetary policy meeting in which they held rates steady at 4.25%–4.5% amid heightened “uncertainty around the economic outlook.”

Source: Bloomberg. Data as of March 21, 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 and Bonds Get back to Their Winning Ways

Wall Street got back to its winning ways after four straight weeks of declines. The S&P 500 Index increased +0.5%. The small cap Russell 2000 Index gained +0.6% for the week and the tech-heavy Nasdaq Composite Index inched up +0.2%. Each of those major U.S. equity indices snapped four-week losing streaks. It was a relatively light week for economic data, but the Federal Reserve (the Fed) played a prominent role in helping stocks advance. On Wednesday, as widely expected, the Fed concluded its March monetary policy meeting by holding rates steady at 4.25%–4.5%. Citing heightened “uncertainty around the economic outlook,” the Fed’s updated dot plot showed lower GDP projections, higher core PCE inflation expectations, and no change in interest rate estimates. “Uncertainty today is unusually elevated,” Fed chairman Jerome Powell said in a press conference after the meeting concluded. “We are going to have to see how things actually work out.” The Fed’s latest forecast still included two interest-rate cuts in 2025, but Powell said he and his colleagues were reluctant to make any changes until they get more clarity on how the economy responds to new tariffs. Equity markets reacted positively to the news with stocks extending gains from earlier in the session with the S&P, the Russell, and Nasdaq all gaining more than 1% on the day, which was the biggest contributing day during the week to deliver the positive week. 

Outside the U.S., stocks continued their strong relative performance, beating their U.S. counterparts for a ninth consecutive week. Developed market international stocks (as measured by the MSCI EAFE Index) were up +0.8% last week while emerging market stocks (the MSCI Emerging Markets Index) had the week’s best, advancing +1.1%. Growth and inflation concerns are also weighing on foreign central banks. The Bank of England held interest rates at 4.5%, as expected, but policymakers expressed concerns over high inflation expectations.  Sweden’s Riksbank kept its benchmark rate at 2.25% after recent data showed that inflation remained above target. However, the Swiss National Bank cut its policy interest rate by a quarter of a percentage point to 0.25%, citing increased downside risks to growth versus lower inflationary pressures. The Bank of Japan adopted a cautious stance as it held rates steady amid higher potential U.S. tariffs on Japan’s economy, despite higher than expected inflation in February.

Bonds also rallied as yields across most maturities declined following the Fed’s policy meeting and ultimately declined for the week for the first time in three weeks.  The yields for the 10-year and 2-year U.S. Treasury bonds fell -7 basis points to finish the week at 4.25% and 3.95% respectively. Bond prices and yields move in opposite directions and the Bloomberg U.S. Aggregate Bond Index gained +0.5% for the week. Non-U.S. bonds, as measured by the Bloomberg Global Aggregate ex U.S. Bond Index, were the only major index to fall for the week, slipping -0.1% after the prior week’s modest -0.3% loss.  

The Week Ahead

All eyes next week will be on the Personal Consumption Expenditures (PCE) report, which is the Federal Reserve’s preferred inflation gauge, slated for release on Friday. But before that there is a bevy of economic reports including the S&P Global PMIs and CFNAI on Monday; Home Price Indices, the Conference Board’s Consumer Confidence, and New Home Sales on Tuesday; Durable and Capital Goods Orders from the Census Bureau on Wednesday; and jobless claims, GDP, and Pending Home Sales on Thursday.

A smattering of earnings reports is also scheduled this week, including GameStop on Tuesday, Dollar Tree on Wednesday, and Lululemon Athletica on Thursday.

Chart of the Week

February Housing Starts showed a robust rebound, driven primarily by single-family homes. Total housing starts increased +11.2% month-over-month to a seasonally adjusted annual rate of 1.501 million units, beating expectations for a +1.4% increase to 1.385 million units. That compares to a -11.5% drop, or 1.350 million units from the prior month (revised down from a -9.8% decrease and 1.366 million units originally reported). Single-unit starts up were up +11.4% to 1.108 million units, the highest amount since February 2024, suggesting a strong rebound in construction activity. Housing starts peaked at 1.800 million in April 2022. New construction starts surged +47.4% in the Northeast, were up +18.3% in the South, and increased +5.9% in the West, but fell -24.9% in the Midwest. On the other hand, Building Permits, one of the leading indicators tracked by the Conference Board and an indicator of future construction activity, declined by -1.2% to an annualized rate of 1.456 million units (unrevised). That was better than the expected -1.4% decline to 1.453 million units but down from the prior month’s -0.6% decline to 1.473 million units. Single-unit permits dipped -0.2%. Regionally, permits were up +8.9% in the Midwest and +1.0% in the South, but down -7.6% in the West and -15.3% in the Northeast. Year-over-year permits were down -1.7%. The decline in building permits raises some concern about future construction activity, particularly with the multifamily segment lagging single-units so much. Overall, the key takeaway is that building activity was bolstered by the return of better weather, and lower interest rates are helping offset elevated construction costs. Especially encouraging was the robust demand for single-family homes. 

Housing Starts Show a Robust Rebound in February

Housing Starts and Building Permits 3-Month Moving Average (thousands, SAAR)

Source: Census Bureau, Briefing.com.

Did You Know?

FOUR FOR FOUR – Last week’s Consumer and Producer Price Indices for February both came in weaker than expected at the headline and core (ex-food and energy) levels. It was the first time all four inflation readings came in weaker than expected in nine months and the 19th time since 2000. (Source: Bespoke)

SEARCHING FOR IT  – Google searches in the U.S. for the word “recession” spiked in the second week of March to their highest level since July 2022 when the U.S. had just printed back-to-back quarters of negative GDP. Relative to the last 20 years, the current search rate for “recession” is at levels last seen in 2022 and March 2020. (Source: Google)

RECESSION? WHAT RECESSION? – Despite the high level of Google searches for “recession”, U.S. companies don’t have a recession on their radar. In a search of conference call transcripts of S&P 500 companies from 12/15/24 through 3/6/25, the term ‘‘recession” was mentioned just 13 times, which was the lowest since Q1 2018 and below the 10-year average of 60. (Source: FactSet)

This Week in History

COVID LOW – March 23 marked the 5-year anniversary of the COVID low for the S&P 500 of 2,237. Over that period the S&P 500 has had a total return (with dividends reinvested) of +173.5%, or +22.3% annualized. That return includes a -25.4% bear market decline from January 3, 2022, through October 12, 2022, as well as the current -10.1% correction from February 19, 2025, through March 13, 2025. As of the close on Friday March 21, 2025, the S&P 500 is 5,667 and is -7.8% from the February 19 all-time high of 6,144.

Economic Review

• The Commerce Department reported that the advanced read on U.S. Retail Sales showed that they barely ticked up in February by +0.2%, far short of expectations for a +0.6% increase. It was a big improvement from the prior month’s reading that was revised lower to -1.2% from the originally reported -0.9.%. Retail sales represent about one-third of all consumer spending and offer clues on the strength of the economy. Most of the rise in spending last month was concentrated in online stores and pharmacies. Online shopping tends to rise when the weather is bad, and indeed Internet retailers posted a +2.4% monthly increase in sales. Sales also rose +1.7% at pharmacies and personal-care stores. Restaurant sales, a key economic bellwether that tend to rise when the economy is healthy, were off -1.5% — perhaps a warning sign being the biggest decline in 13 months — but may also reflect the cold snap across much of the country. Auto sales account for one-fifth of all retail sales, and sales of cars and trucks fell for the second month in a row. Retail Sales Ex-Autos were up +0.3%, in line with expectations. Sales Ex-Autos and Gas were even stronger, up +0.5%, ahead of expectations for a +0.4% rise. Both were revised lower, to -0.6% and -0.8% respectively from the prior month’s ordinally reported results. Importantly, the Control Group, a figure used to calculate Gross Domestic Product (GDP), jumped +1.0%, sharply higher than expectations for a +0.4% increase and -1.0% from the prior month (which was revised lower from +0.8%). The rebound in the so-called control group suggests retail sales won’t be a big drag on first-quarter GDP as it might have seemed a month ago. 
• The Conference Board’s Leading Economic Index (LEI) slipped -0.3% in February to 101.1 from an upwardly revised -0.2% the prior month (originally reported at -0.3%), which is where it was expected to stay. Breadth of the index was mixed with four of the 10 indicators tracked positive for the month, while 5 were negative and 1 was unchanged. The decline was driven by manufacturing New Orders, which retreated after an improvement in January, and were the second largest negative contributor to the monthly decline. Consumer expectations of future business conditions soured further, while the components for ISM New Orders fell again as well. On a positive note, the LEI’s six-month and annual growth rates, while still negative, have remained on an upward trend since the end of 2023, suggesting that headwinds in the economy as of February may have moderated compared to last year. Also, the LEI Coincident Index improved by +0.3, its fourth straight monthly improvement, while the LEI Lagging Index rose by +0.4% and hasn’t declined in five months.
• Homebuilder confidence fell again in February, as the National Association of Home Builders (NAHB) Housing Market Index (HMI) moved down -3 points to 39, the lowest level in seven months. That was short of expectations for 42. A year ago, the index stood at 51. The index is based on a 0-to-100 scale, where any number over 50 indicates a good reading, and below 50 is considered negative sentiment. The Current Sales component fell -3 points to 43, while Sales Expectations in the Next Six Months held steady at 47, and Traffic of Prospective Buyers fell -5 points to 24. For the month, 29% of builders reported cutting home prices, up from 26% the prior month. The average price reduction was unchanged at 5%. The use of sales incentives beyond price cuts was also unchanged at 59%. 
• The National Association of Realtors (NAR) reported that Existing Home Sales rose +4.2% in February to a seasonally adjusted annual rate of 4.26 million units, above expectations for a -3.2% drop to 3.95 million units and up from the -4.7% drop of 4.09 million units reported the prior month (revised higher from 4.08 million). Year-over-year existing sales were down -1.2%. The Median Existing Home Price declined to $398,400. Year-over-year, home prices were up +3.8% compared to +3.9% the prior month. The Inventory of Homes for Sale was up +5.1% from the prior month to 1.24 million units. Unsold Inventory remained at a 3.5-month supply. Homes Listed for Sale remained on the market for 42 days on average, up from 41 days the previous month. First-Time Buyers were 31% of sales in the month, up from 28% the month before. Historically, these buyers make up closer to 40% of home sales, but affordability has been hit hard in the last two years due to fast-rising home prices and higher mortgage rates. All-Cash Sales rose to 32% of transactions from 29% the prior month. Homes sold above list price were 21%, up from 15% a month ago. For the month, sales in the Northeast were down -2.0%, the South were up +4.4%, the West were up +13.3%, and the Midwest were flat at 0.0%.
• Imports Prices rose +0.4% in February, the same as the prior month after being revised higher from +0.3%. Wall Street was expecting no change. Import Prices ex Petroleum was also up +0.4%, up from an unrevised +0.1% the prior month and above expectations for a +0.2% rise. Year-over-year, the cost of imports was up +2.0%, above expectations for +1.6% and up from +1.8% the prior month (revised down from +1.9%). Meanwhile, Export Prices inched up +0.1%, more than the expected decrease of -0.1% but far below the prior month’s unrevised +1.3% reading. Export prices decelerated to +2.1% over the past year, down from last month’s unrevised +2.7% annual rate.
• The New York Fed’s Empire State Manufacturing Index, a gauge of manufacturing activity in the state, plunged -26 points in March to -20. This was far worse than the expected -1.9 reading and down from an unrevised +5.7 the prior month. New Orders fell -26 points to -14.9 and Shipments fell -23 points to -8.5, indicating that both components lost most of the prior month’s rebound to positive territory. Forward looking indicators fell for a second straight month with the index for Business Conditions Expected in Six Months falling another -10 points after the prior month’s -15 point drop, to a +12.7 reading. Of concern, the inflation components accelerated even more with the Prices Paid indicator up +5 points after the +11 point rise the prior month, and the Prices Received indicator was up +3 points after a +10.3 point jump in February.
• The Philly Fed Manufacturing Business Outlook Survey declined to +12.5 in March from an unrevised +18.1 the prior month. That was above estimates for a drop to +9.0. Readings above zero indicate economic expansion. The indexes for New Orders and Shipments both declined for a second straight month, with New down -13 points to +8.7 and Shipments down -24 points to +2.0. The Employment index increased from +5.3 to +19.7 this month, its highest reading since October 2022. Almost 22% of the firms reported increases, while 2% reported decreases, and 71% of the firms reported no change in employment levels. The average workweek index rose +6 points to 8.7.
• Weekly MBA Mortgage Applications fell -6.2% for the week ending March 14 following two weeks of big gains. The Purchase Index rose +0.1% after rises of +7.0 and +9.1% the prior two weeks. The Refinance Index dropped -12.8% after surging +16.2% and +37.0% the prior two weeks. The average 30-Year Mortgage Rate rose to 6.72% from 6.67% the prior week, the first increase after six straight weekly declines.
• Weekly Initial Jobless Claims rose by +2,000 to 223,000 for the week ending March 14, lower than expectations for claims of 224,000. The prior week was revised lower by 1,000. The number of people already collecting unemployment claims (i.e., Continuing Claims) rose by +33,000 to 1,892,000 in the week ending March 8, worse than expectations for 1,887,000 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.