Daily market snapshot

• Stocks move sharply lower after sentiment data falls – U.S. equity markets closed sharply lower on Friday, down 1.5% to 2.5% across the board. The S&P 500 is about 1% away from re-testing the recent lows on March 13. The volatility continues to be driven by uncertainty around tariff policy, as well as fresh sentiment data this morning, which pointed to weaker consumer confidence and higher inflation expectations. The Michigan Consumer Sentiment survey was revised lower from 57.9 to 57 in March, the lowest reading since 2022 and reflecting a softening mood from consumers amid the uncertain policy backdrop. The S&P 500 is on pace for the second month of declines and is down around 5% for the year. The technology-heavy Nasdaq, however, is down nearly 10% this year thus far, underscoring the rotation away from mega-cap technology sectors*. Markets are awaiting next week's April 2nd reciprocal tariff announcement, and many investors are likely remaining on the sidelines ahead of that news. The bond market, however, has remained a safe-haven asset class in 2025, as yields have come down from recent highs. The 10-year Treasury yield, for example, has fallen from about 4.8% in mid-January to around 4.25% today*. In our view, yields will likely remain in the 4% to 4.5% range and could move towards the lower end if the Fed embarks on rate cuts later this year.
   
• Personal consumption expenditure (PCE) inflation slightly hotter than expected – Headline PCE inflation for February was in-line with expectations at 2.5% year-over-year, steady versus last month's reading. Core inflation, excluding food and energy, however, was up 2.8%, above forecasts of 2.7% and last month's reading of 2.6%*. While this implies that services inflation continues to remain sticky, we have not yet seen a substantial uptick in goods inflation. This may occur in a more meaningful way as tariff policy is implemented across a variety of sectors in the goods economy. Meanwhile personal consumption rebounded somewhat in February, up 0.4% for the month after falling 0.2% the prior month. Real spending, adjusted for inflation, was up more modestly at 0.1% after falling 0.5% the month prior*. Overall, the data shows households that continue to spend despite stickier inflation trends, perhaps ahead of potential tariff policy updates.
   
• Tariff policy update set for April 2nd – Tariff policy, and the uncertainty around the size, scope, and timing of potential tariffs, have weighed on stock market performance. This is largely because 1) markets do not like uncertainty, and 2) the potential impacts of tariffs could mean higher prices and lower consumption overall. However, we expect to see some more clarity on tariff policy coming on April 2 as the U.S. administration unveils its reciprocal tariff policy. In our view, the administration may be taking a bifurcated approach to tariffs: certain industries will be deemed critical, including steel and aluminum (for defense), semiconductors, and perhaps autos and pharma, while reciprocal tariffs with key trading partners may be more of a basis for negotiation. Once tariff policy is outlined and in place, while there will be ongoing debate and adjustments made, consumers and corporations should have a better sense of the policy backdrop in which they are operating. And the hope is that policy focus then shifts to a more pro-growth agenda that includes tax reform and deregulation, which could support better market sentiment overall.
   

Mona Mahajan
Investment Strategy

^{Source: *FactSet} 
 

• Stocks finish modestly lower following auto tariff announcement – U.S. equity markets closed slightly lower on Thursday, as markets digested the latest round of tariff announcements. Yesterday afternoon, President Donald Trump announced a 25% tariff on all cars not made in the U.S. In response, shares of auto manufacturers such as Ford and General Motors were under pressure, however, the broader market fared better. The S&P 500 posted a 0.3% decline today but remains in positive territory for the week.* At a sector level, defensive segments outperformed with consumer staples and health care among the top performing sectors of the S&P 500.* Overseas, Asian markets were mixed overnight while European equities traded lower with the U.S. auto tariff announcement weighing on the region. On the economic front, initial jobless claims for last week were 224,000, little changed from the prior week and highlighting that labor market conditions remain healthy. Bond yields finished slightly higher with the 10-year Treasury yield rising to 4.36%.* 
   
• Trade policy in focus – On Wednesday afternoon, President Donald Trump announced a 25% tariff on all autos not made in the U.S. The tariffs will be applied to all imported passenger vehicles as well as auto parts such as engines, transmissions, powertrain parts and electrical components.** However, importers of autos under the United States-Mexico-Canada Agreement (USMCA) will only be tariffed on the value of their non-U.S. content.** Yesterday's announcement comes ahead of the highly anticipated reciprocal tariff announcement on April 2nd. Recent commentary has suggested the U.S. administration could take a more lenient approach when applying reciprocal tariffs, perhaps allowing for negotiations, although, the final outcomes remain uncertain. In our view, trade policy is likely to remain a source of uncertainty for markets over the coming weeks and months which strengthens the case for portfolio diversification. Despite volatility in U.S. equity markets, international developed large-cap stocks have gained nearly 10% this year including dividends while U.S. investment grade bonds have gained roughly 2%.* We believe investors should view any pullbacks as an opportunity to add to quality investments in line with their goals with an emphasis on diversification. 
   
• Despite an uncertain policy backdrop, U.S. economic data appears healthy – The third estimate for fourth quarter real GDP was revised up from 2.3% to 2.4%, driven primarily by downward revisions to imports. While GDP data is backward looking, the healthy fourth-quarter GDP reading provides evidence that the U.S. economy entered 2025 with strong momentum. Additionally, initial jobless claims for last week were 224,000, little changed from the prior week's reading of 225,000.* The current level of jobless claims is well below the 30-year median of 324,000, highlighting that labor market conditions remain broadly supportive. While tariffs and policy uncertainty could create a moderate but likely manageable headwind to economic growth, we'd reiterate this comes from a strong starting point. In our view, the U.S. economy is likely going through a mid-cycle adjustment after two years of strong economic growth, not headed for recession.
   

Brock Weimer, CFA
Investment Strategy

^{Source: *FactSet **whitehouse.gov
International developed large-cap stocks represented by MSCI EAFE Index. Return in USD.
U.S. investment-grade bonds represented by the Bloomberg U.S. Aggregate Bond Index.} 
 

• Stocks turn lower amid tech weakness – U.S equity markets closed lower on Wednesday, with the S&P 500 snapping a streak of three consecutive trading days with positive returns. Equity-market weakness was primarily concentrated in growth sectors of the market following a report that NVIDIA could face more stringent regulations in China, which weighed on sentiment for the broader technology sector. Tariff concerns resurfaced today as well, with President Donald Trump expected to announce tariffs on auto imports later this afternoon.* The tech-heavy Nasdaq was lower by 2% while the Dow fared better, closing lower by roughly 0.3%.* Overseas, markets in Asia were mostly higher overnight, while European markets were mostly lower despite a U.K. inflation reading that was below expectations.* On the economic front, durable goods orders rose by 0.9% in February, above expectations for a -1% contraction.* The stronger-than-expected February reading followed a robust 3.3% monthly gain in January, likely driven by companies attempting to front-run tariffs by placing goods orders before tariffs take effect. Bond yields finished higher, with the 10-year Treasury yield climbing to 4.35%.*
   
• Inflation in focus – U.S. inflation and its implications for monetary policy will be in focus for markets this week, with personal consumption expenditures (PCE) inflation out on Friday. Expectations are for headline PCE to rise by 0.3% in February and 2.5% on an annual basis. The Fed's preferred measure of inflation, core PCE, is expected to post a 0.3% gain in February and rise by 2.7% on an annual basis.* Consumer price index (CPI) and producer price index (PPI) inflation, which were released earlier this month, were both lower than expectations, helping ease market concerns after higher-than-expected inflation readings in January. While tariffs pose an upside risk to inflation over the coming months, we believe they would represent a one-time increase in the level of prices as opposed to an ongoing source of inflation that would cause long-term inflation expectations to become unanchored. This should allow policymakers to look through an increase in prices related to tariffs, although they will closely monitor market conditions to ensure that inflation expectations remain contained. Our base-case is for the Fed to lower its policy rate to between 3.5% -4% by the end of 2025. However, we expect the Fed to remain on hold in the near term as it awaits more clarity on the impact of tariffs.
   
• Rotation in leadership is underway – After two consecutive years of mega-cap tech dominance, equity-market leadership has rotated in the first months of 2025. Energy is the top-performing sector year-to-date, higher by nearly 10% including dividends, followed by health care, which has gained 6%, and financials, which has gained 4.7%.** Meanwhile, last year's leaders have lagged behind. Consumer discretionary is lower by roughly 9%, while information technology has declined by over 7%.** While we acknowledge there are reasons for optimism in mega-cap technology companies, the rotation in leadership beyond these names in the early part of 2025 reiterates the importance of diversification. As part of our opportunistic equity sector guidance, we recommend investors consider overweighting health care and financials while underweighting the materials and consumer staples sectors. We recommend a neutral allocation to all other sectors. We expect the broadening of leadership beyond mega-cap tech stocks to be a key theme of 2025, potentially rewarding those with well-diversified portfolios. 
   

Brock Weimer, CFA
Investment Strategy

^{Source: *FactSet 
**FactSet, total return through 3/25/2025. GICS sectors of the S&P 500 Index.} 
 

• Stocks close higher: Equity markets closed higher on Tuesday, with communication and consumer discretionary stocks leading to the upside. Bond yields fell, with the 10-year Treasury yield at 4.32%. In international markets, Europe was up, led by automotive stocks on reports that not all U.S. tariffs may be levied on April 2 as trade negotiations continue*. The U.S. dollar declined against major international currencies. In commodity markets, WTI oil was little changed, as prices stabilized following the announced Russia-Ukraine ceasefire covering the Black Sea and energy infrastructure*.
   
• Home prices rise in line with expectations - The S&P CoreLogic Case-Shiller 20-City Home Price Index rose 4.7% in January from the year-earlier period, as expected, up from 4.5% in December*. The pace of home-price gains had been slowing for much of 2024, falling from the February peak of 7.5% year-over-year. However, this trend reversed in the past few months, with New York reporting the largest annual gains, followed by Chicago and Boston**. The broader national index rose 4.1% annualized, which is about in line with the shelter component of the consumer price index (CPI). Limited supply of available homes for sale have been a contributor to higher prices. Existing home sales rose to a 4.3 million annual pace in February but remained well below the yearly average of about 5.2 million over the past decade. Many homeowners have mortgages with interest rates well below current market rates, which are about 6.7% for 30-year fixed-rate mortgages*, meaning their house payments would likely rise if they were to sell. Additional Fed interest-rate cuts could help lower mortgage rates, potentially bringing more homes to market and returning supply and demand to better balance. 
   
• Consumer confidence worsens – The Conference Board's Consumer Confidence Index declined for the fourth consecutive month in March to 92.9, below forecasts pointing to 94.3. Pessimism about future business conditions and employment prospects were key detractors. Inflation expectations for the next 12 months rose to 6.2%, from 5.8% in February, driven by the recent rise in prices of household staples and the expected impact of tariffs, based on written responses***. Intentions to purchase homes and cars were down, while plans to buy other big-ticket items, such as appliances and electronics, rose. These trends could start to weigh on consumer spending, although further progress in bringing inflation down and clarity on tariffs could help improve sentiment, in our view.
   

Brian Therien, CFA
Investment Strategy

^{Source: *FactSet **S&P ***The Conference Board}
 

• Stocks close higher on tariff optimism: Equity markets closed higher Monday on reports that the Trump administration may initially pursue a narrower set of reciprocal tariffs on a group of countries that represent the majority of U.S. trade*. Reciprocal tariffs are intended to equalize U.S. tariffs with those charged by trading partners. If true, we believe this would be a positive development, as it could reduce the scope of the inflation impact of tariffs, while also potentially facilitating trade negotiations. Consumer discretionary and communication stocks posted the largest gains, reflecting a risk-on tone to the trading session. In international markets, Europe was modestly lower, as the S&P preliminary (flash) Eurozone Services Purchasing Managers Index (PMI) remained in expansion territory but missed estimates*. The U.S. dollar advanced relative to major international currencies. In commodity markets, WTI crude oil traded higher, as the latest output plan from OPEC points to tighter supply*.
   
• Services index rises more than expected; manufacturing edges lower: The S&P Flash U.S. Services PMI, which accounts for the majority of the economy, rose to 54.3 for March, above forecasts for a modest decline to 50.8**. The figure, which remains above the key 50.0 mark that reflects expansion, was driven by higher services output. Higher prices due to tariffs and labor costs were also a key contributor. Business activity also appears to have picked up following adverse weather, which slowed activity in January and February. Flash manufacturing PMI fell to 49.8, below estimates for a smaller decline to 51.9. Factories reported fewer new orders to get ahead of tariffs, which temporarily boosted output in prior months. Overall, we view these readings positively, as an acceleration of the services sector would more than offset the decline in manufacturing, as it represents a larger portion of the U.S. economy.
   
• Bond yields rise: Bond yields edged higher, with the 10-year Treasury yield at 4.34%. Bond markets are pricing in expectations for two Fed interest-rate cuts, which is in line with the Fed's updated economic projections that were released last week. While we expect the Fed to remain on the sidelines for a while longer as it awaits more clarity on the implementation and potential impact of tariffs, we believe the central bank remains on its easing path. Lower interest rates should reduce borrowing costs for individuals and businesses, which would be supportive of the economy and corporate profits. 
   

Brian Therien, CFA
Investment Strategy

^{Source: *FactSet **S&P}