Updated 03/31/2025

Our Perspective on the Markets Last Week:

Equity prices ended a roller coaster of a week on a negative note. The price change of select U.S. indexes for the week was: S&P 500 (-1.53%), Dow (-0.96%) and the Nasdaq (-2.59%). The 10yr. Treasury note yield rose 0.02 percentage points to 4.27%.

Investors were optimistic to start the week after President Trump said he may give "a lot of countries breaks" when it comes to reciprocal tariffs expected April 2. "We may take less than what they're charging because they've charged us so much, I don't think they could take it," the president said.

The move higher to start the week was led by big tech as it looked to rebound from the recent selling pressure. Through Tuesday, the Nasdaq had gained almost 500 points, or about 2.7%.

On Wednesday, a new round of tariff talks on auto imports set the stage for the bears. The president said an initial 2.5% tariff (ultimately increasing to 25%) tariff would be imposed on all vehicles (and parts) not manufactured in the United States, also effective on April 2.

Also weighing down market sentiment was the key February PCE inflation reading that came in a tad hotter than anticipated on Friday. Core PCE inflation rose by 0.4%, marking the largest monthly gain since January 2024, and bringing the annual core inflation rate to 2.8%, up from 2.7% in January. On a positive note, incomes rose by 0.8%.

The Personal Consumption Expenditures (PCE) Price Index has been the Fed’s preferred inflation because it better reflects real consumer behavior, covers a broader range of spending, and provides a more stable and accurate picture of inflation trends

In addition to the PCE reading on Friday, the University of Michigan’s consumer sentiment index gave investors reason for pause. According to the report consumers showed a particular worry about the labor market, with two-thirds of consumers expecting unemployment to rise in the year ahead, the highest reading since 2009. The sentiment index fell to a 32-month low on concerns for higher inflation and higher unemployment.

The S&P 500 ended the week back correction territory, and the Nasdaq closed almost -15% below its December 16 high.

Looking Ahead:

The week ahead is filled with potential market moving events and reports. The first quarter wraps up on Monday and big bank earnings will start next week.

The calendar for economic data reports is busy and includes updates on private payrolls, job openings, auto sales figures, as well as reports on the services and manufacturing sector activities. The big economic report for the week is the monthly payrolls report from the BLS, which comes on Friday.

Meanwhile, the vast majority of the attention will be squarely on Wednesday, April 2nd - the date President Donald Trump has dubbed "Liberation Day" where reciprocal and auto tariffs are scheduled to go into effect.

Lastly, Federal Reserve Chair Jerome Powell is scheduled to speak on Friday.

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Probability of an interest rate change at next FOMC meeting:

DECREASE -25 bps
0%
No Change
0%
INCREASE +25 bps
0%

Current Target Rate is 4.25% - 4.50%

Select Economic Data Releases

*Colored icon denotes a new data release.
Gross Domestic Product

The final revision of Q4 2024 GDP was raised a tenth of a percent to a 2.4% annualized pace.  Q3 GDP showed the U.S. economy expanded at a frothy 3.1% annual pace in the third quarter, revised up from 2.8%.  Q2 GDP grew at a 3.0% annual pace.  Q1 2024GDP grew at a 1.4% pace due largely to much slower growth in consumer spending.  The final revision of Q4 GDP rose to 3.4%.  U.S. GDP grew at 4.9% annual pace in the third quarter.  Q2 GDP grew at a 2.1% annualized rate but consumer spending turned out to be weaker than originally reported. The growth was driven by robust consumer and business spending.  U.S. GDP increased at a 2.0% growth rate during Q1.  GDP was trimmed again to a 2.6% pace during Q4.  The increase in consumer spending was reduced in the latest estimate to 1% from 1.4% last month and an original 2.1%.  The annual growth rate remained at 2.1% for 2022.

Employment Data

March payrolls data comes this week.  U.S. nonfarm payrolls increased by 151K in February and the unemployment rate ticked up to 4.0%.  Nonfarm payrolls grew by 143K in January, a significant drop from the upwardly revised December gains.  Although it was shy of the average monthly gain of 166K observed throughout 2024, the unemployment rate edged down to 4.0%.  The U.S. economy added 307K jobs in December, blowing past analysts' expectations of 160K new jobs. The unemployment rate ticked down to 4.1% from 4.2% and average hourly pay increased at a solid 0.3% rate from November.  U.S. employers added 227K jobs in November, exceeding forecasts of 214K.  Unemployment rose to 4.2% from 4.1%. Relative to October, November’s annual wage growth was unchanged at 4.0%.  October U.S. nonfarm payrolls rose by just 36K, far less than the anticipated 125K gain. The unemployment rate held steady at 4.1%, as expected..  The September jobs report was revised down to 173K from 254K.  Employers added 111K jobs in August and the unemployment rate dropped to 4.2%.  The U.S. added a mild 114K new jobs in July and unemployment hit a nearly 3-year high of 4.3%.  The payrolls report showed a solid 206K new jobs in June, but also showed signs of deterioration as May and April job gains were reduced by 111K.  The unemployment rate rose to 4.1%.  

Retail Data

The February retail sales increase of 0.2% was les than anticipated, but a 1% increase in receipts from the "control group" provided some reassurance that the consumer is still solid.  Retail sales fell in January by -0.9% after consumers took a breather from holiday shopping season and a severe cold snap kept people indoors.  Sales at U.S. retailers advanced a seasonally adjusted 0.4% in December with most parts of the country reporting “strong holiday sales that exceeded expectations,” according to the Federal Reserve’s Beige Book.  For 2024, retail sales grew by 3.0%.  The November retail sales jumped 0.7% on strong new car and truck buying and online shopping.  However, receipts at restaurants dipped by -0.4% from October.  Retail sales for October rose by 0.4% and receipts in September were revised higher to a 0.8% increase.  August retail sales grew by 0.1%.  July retail sales surged 1%, blowing past estimates for a 0.3% rise.  June retail sales were revised lower to -0.2% from the previous month, but that was still better than the forecasted decline of -0.4%. If you remove auto and gas sales from the figure, retail sales rose by 0.8% month-over-month.  Sales at U.S. retailers rose a mere 0.1% in May, suggesting Americans are feeling the weight of lingering inflation and high interest rates.  In addition, April retail sales were revised down to a -0.2% contraction.  The government reported retail sales were up 0.7% in March compared to February, and up 3.6% from the same period last year.  Retail sales rose +0.9% in February after falling a revised -1.1% in January.   

Housing Data

Sales of existing homes also rose in February but remained slightly below the 2024 pace at this time last year. Existing home sales rose 4.2% during the month to a 4.26M pace.  Sales of newly built homes slowed to 657K annual pace in January, from the 671K pace in December.  Building permits in January rose 0.1% above the revised December rate of 1.48M, but was 1.7% below the January 2024 rate of 1.51M.  Pending home sales, which refer to the number of contracts signed to purchase a home, fell 5.5% in December while sales of newly built homes rose to an annual rate of 698K.  Sales of newly built homes in the U.S. rose by almost 6% in November to an annual rate of 664K.  Sales of previously-owned homes rose 4.8% to an eight-month high annual rate of 4.15M in November, as home buyers seized relatively lower mortgage rates.  Existing-home sales rose 3.4% to an annual rate of 3.96M in October but are expected to remain sluggish for the time being.  Sales of existing homes are still struggling while new homes sales remain strong. The annualized rate for sales of existing homes fell -1% to 3.84M in September, a 14-year low, but sales of newly built homes rose by 4.1% month-over-month.  Sales of newly built homes in the U.S. fell -4.7% to an annual rate of 716K in August, from an upwardly revised 751K in the prior month.  Pending-home sales also ticked up in August as a big drop in mortgage rates prompted some home buyers to act.  Construction of new homes rose 9.6% in August to a 1.36M annual pace. Building permits, a sign of future construction, rose 4.9% to a 1.48M rate.  

Leading Indicators

The LEI in February fell by -0.3% after an upward revision in January from -0.3% to -0.2%.  The Leading Economic Indicators index rose 0.1% in December 2024 (upwardly revised from an initially estimated decline of 0.1%).  November LEI was revised up +0.4% in November. The LEI declined by -1.3% over the second half of 2024, slightly less than its -1.7% decline over the first half of 2024.  The leading index dropped -0.3% in October, largely because of higher jobless claims, fewer building permits and a decline in manufacturing orders.  The leading indicators of the U.S. economy fell -0.5% in September because of weakness in a few key industries such as housing and manufacturing, but not enough to suggest any sign of major trouble.  The leading indicators for the U.S. economy dropped -0.2% in August, the sixth consecutive decline.  The leading index for the economy fell -0.6% in July, the fifth straight monthly decline.  The leading index for the economy fell again in June (-0.2%) for the fourth month in a row, reflecting a slowdown in U.S. growth since the beginning of the year.  The Conference Board said the index of leading indicators dropped -0.5% in May, “doesn’t currently signal a recession."  The leading indicators for the U.S. economy fell -0.6% in April, pointing to ”serious headwinds to growth.”  The index fell again in March.  The decline was -0.3%.

Inflation

Headline PCE inflation of 0.3% in February was a slightly faster pace than expected.  Core PCE also came in slightly hotter than estimated at 0.4% for the month.  Consumer and producer inflation came in soft for February.  Consumer inflation rose 0.2% (0.3% expected) during the month while producer prices were flat, compared to an expected rise of 0.3%.  In January, the Personal Consumption Expenditures (PCE) price index rose by 0.3% from the previous month. Over the past 12 months, the index increased by 2.5%, slightly down from December's 2.6% rise.  Core PCE registered a 2.6% increase, marking a decrease from December's 2.9%.  The CPI for January indicated a 0.5% month-over-month increase and PPI rose by 0.4%.  Both were hotter-than-expected.  The PCE index rose 0.3% in December, marking the biggest increase since last April.  The producer-price index, where the seeds of inflation are planted, rose a mild 0.2% in December and the core rate of change for wholesale prices was 0.1%. Consumer inflation in December was 0.4%, driven largely by higher prices for flour, pork and eggs, while the cost of energy jumped 2.6%.  Excluding food and energy price changes, the core CPI for December was 0.2%.  Consumer prices rose 0.4% in November, exceeding the expectation for a 0.3% month-over-month increase and the 12-month rate of change climbed to 2.7% from 2.6%. It was the second straight rise in the annual rate of change.  

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