Week in Review: March 14, 2025

March 17, 2025

Recap & Commentary

Markets ended lower for the fourth consecutive week, with the S&P 500 briefly entering correction territory, weighed down by erratic trade policy announcements and attendant uncertainty and concerns. The S&P 500’s correction, defined as a pullback of 10% or more from recent highs, was its first since 2023. Corrections, however, are not all that uncommon, occurring once a year on average. According to Barron’s, the average decline for the S&P 500 during a correction is 13%, and the loss is fully recovered within 3-4 months.

Markets were rattled at the start of the week after President Trump refused to rule out the possibility of a recession in 2025 stemming from current trade policies/actions. For economists and investors, the concern is that a recession could become a self-fulfilling prophecy if consumers and business pullback on spending worried about what the future holds.  Recent business and consumer sentiment readings have added to those concerns with small business uncertainty reaching its second highest level on record dating back 50 years, while consumer sentiment plunged in February to its lowest level since November 2022, led by a sharp decline in consumers’ expectation of future economic conditions, which fell to their lowest level since June 2022.

On Wednesday, President Trump’s previously announced 25% tariffs on steel and aluminum imports took effect prompting retaliatory measures from the European Union and Canada. Still unclear is if/when President Trump will implement additional tariffs on copper imports as well as reciprocal tariffs.

Economic Commentary

Consumer and producer inflation showed signs of easing in February. On a monthly basis, headline consumer inflation (CPI) slowed from 0.5% in January to 0.2%, while compared to a year ago, it slowed from 3.0% in January, to 2.8%, its slowest pace since last November. Core CPI, excluding food and energy, slowed from 0.4% in January to 0.2%. Compared to a year ago, it slowed from 3.3% to 3.1%. Despite the smaller price increases, the odds of a Fed rate cut in May and June fell, not rose, on the news, in part because the slower pace of inflation was aided by a 4% decline in airfares, meaning underlying inflationary pressures did not necessarily ease by as much as the headline pace suggested.

Producer prices (PPI) also slowed in February with the headline measure remaining flat for the month after increasing 0.6% in January.  Compared to a year ago, headline PPI inflation slowed from 3.7% in January to 3.2%.  Core PPI actually fell 0.1% for the month while increasing 3.4% from a year ago, down from January’s 3.8% pace.

Consumer sentiment deteriorated further in the first half of March, falling to its lowest level since Nov. 2022. Concerns about trade policy and the potential for higher inflation weighed on consumer’s views of both current and future economic conditions. One-year inflation expectations jumped from 4.3% to 4.9%, the highest level since Nov. 2022, while five-year inflation expectations rose 0.4% to 3.9%, the highest level in 32 years. The large increases will not go unnoticed by the Fed which is sensitive to consumers inflation expectations.

Of Note

Congress avoided a government shutdown by passing a stop gap funding bill to fund the government through September 30, the end of its fiscal year.  The bill will generally maintain funding at 2024 levels with a few slight changes.

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Market Indices   (As of 03/14/2025)

• Retail Sales
• Housing Starts
• Existing Home Sales
• Industrial Production
• Initial Jobless Claims