Daily market snapshot

• Stocks close lower as post-Fed rally fades – Equity markets closed lower on Thursday, with materials and consumer staples stocks leading to the downside. In global markets, Asia was mixed, as China's central bank held its policy rate steady at 3.1% as expected. Europe was down, with banks and autos posting the largest declines, as the Bank of England left interest rates unchanged at 4.5%, also in line with forecasts. Bond yields fell, with the 10-year Treasury yield at 4.24%. The U.S. dollar advanced versus major currencies but remains about 5% below its January peak. In the commodity space, WTI oil traded higher as the U.S. issued new sanctions on crude from Iran*.
   
• Jobless claims edge higher, as expected - Initial jobless claims rose to 223,000 this past week, slightly below estimates calling for 224,000*. Jobless claims have averaged about 227,000 over the past four weeks, modestly above the weekly average of 223,000 for 2024*. While federal government layoffs will likely drive jobless claims higher in the months ahead, we believe these readings, combined with other recent data, indicate that the labor market remains healthy. With the unemployment rate still low at 4.1% and job openings exceeding unemployment, wage gains should remain above inflation, providing positive real wages to support consumer spending and the economy.
   
• Leading economic index ticks lower – The Conference Board's Leading Economic Index (LEI), which is intended to provide an early indication of significant turning points in the business cycle and where the economy is heading in the near term, fell 0.3% to 101.1 in February. Weaker consumer expectations for business conditions and lower manufacturing new orders were the largest drivers of the decline, while higher weekly hours worked for manufacturing and the recent rise in the S&P 500 were the main positive contributors. Importantly, LEI's six-month change, while still negative, remained on its upward trend and does not signal recession risk**. These readings indicate that growth is slowing amid policy uncertainty but do not point to a recession. Pro-growth policies, such as deregulation and tax cuts, should help accelerate the economy later this year, in our view.
   

Brian Therien, CFA
Investment Strategy

^{Source: *FactSet **The Conference Board}
 

• Stocks rise post Fed meeting: Equity markets closed higher on Wednesday, following the Fed's decision to hold interest rates steady and slow the pace of balance sheet reduction, known as quantitative tightening (QT). In addition to the interest rate and QT decision, today's meeting provided updated economic projections which pointed to 0.5% of interest-rate cuts in 2025 and modestly higher inflation.** The positive reaction from markets likely reflects some relief that despite the potential for tariffs to drive inflation modestly higher, Fed Chair Powell reiterated that they believe the inflationary impact of tariffs will be transitory as opposed ongoing source of inflation. Leadership was broad-based with all eleven sectors of the S&P 500 finishing higher. Growth sectors such as technology and consumer discretionary along with cyclical sectors such as energy were among the top performers.* Overseas, Asian markets were mixed overnight while European markets were mostly higher following a lower-than-expected inflation reading from the euro zone.* Bond yields closed lower with the 10-year Treasury yield closing around the 4.25% mark.* 
   
• Fed holds rates steady while projections suggest two rate cuts in 2025: The Fed opted to hold the target range for the federal funds rate steady in today's meeting at 4.25%-4.5%. In addition to holding the policy rate steady, the Fed announced it will slow the pace of reducing its Treasury securities holdings beginning in April. The slower pace of QT should support liquidity conditions in financial markets. The FOMC also provided updated economic projections at today's meeting. Updated projections showed no changes to expectations for rate cuts in 2025, with the median expectations still calling for two quarter-point rate cuts this year.** On the inflation front, the 2025 projection for core PCE inflation moved up from 2.5% last December to 2.8%, with tariffs cited as part of the reason for the rise.** In his commentary Fed Chair Jerome Powell stated that the Fed's base case is that tariffs would create a one-time increase in the level of prices as opposed to an ongoing source of inflation which could de-anchor long-term inflation expectations. As such, the year-end core PCE projection for 2026 & 2027 were left unchanged from the December projections. On the growth front, the 2025 FOMC real GDP projection declined from 2.1% in December to 1.7%, reflecting softer but still healthy economic growth.
   
• Perspective on pullbacks: On last Thursday, the S&P 500 closed 10.1% below the mid-February all-time high, marking the first 10% pullback since 2023.* While never comfortable, pullbacks are a normal part of investing. Since 1971, the S&P 500 has posted 43 years of positive returns including dividends.*** However, even in years with positive returns, the S&P 500 has on average posted a max drawdown of 9.7%.*** Additionally, there have been nine years in which the S&P 500 declined by 10% or more and still went on to post double digit returns for the year.*** In our view, volatility could persist until there is greater clarity on the policy front. However, we believe underlying economic conditions remain healthy which should be supportive to markets over the coming months. For this reason, we recommend investors maintain a long-term focus through pockets of volatility and look for opportunities to add to quality investments in line with their goals. 
   

Brock Weimer, CFA
Investment Strategy

^{Source: *FactSet **December 2024 FOMC Summary of Economic Projections
***Morningstar Direct, Edward Jones. S&P 500 Total Return Index.} 

• Stocks fall ahead of Fed meeting: U.S. equity markets finished lower on Tuesday, giving back part of the gains from the previous two sessions. From a leadership perspective, growth sectors of the market such as technology and communication services were among the laggards while value sectors such as energy and health care fared better.* Overseas, markets in Asia were higher overnight while European markets traded higher as well following a jump in German economic sentiment to the highest level since 2022.* Additionally, policymakers in Germany voted to pass a fiscal package that will permit higher defense and infrastructure spending.* The spending package will need to receive approval from another branch of the German government on Friday before going into effect. On the economic front, industrial production rose by 0.7% in February, above expectations for 0.2%.* The better-than-expected read on industrial production is consistent with recent survey data which has suggested the manufacturing sector of the U.S. economy has been gaining momentum over recent months. Bond yields finished slightly lower with the 10-year Treasury yield closing just below 4.3%.* Looking ahead, monetary policy will be in focus with the Fed interest rate decision and updated economic projections out tomorrow afternoon. 
   
• Fed in focus: Today marks the beginning of the March FOMC meeting, with an interest rate decision and updated economic projections expected tomorrow afternoon. Markets are expecting the Fed to maintain the fed funds target range at 4.25% - 4.5% tomorrow. A hold at tomorrow's meeting would be consistent with recent comments from Fed Chair Powell that because the U.S. economy remains in good shape, the Fed can be patient with further rate cuts. With consensus expectations for the Fed to remain on hold, market focus will likely center on updated FOMC economic projections. In the most recent projections, FOMC members expected two 0.25% rate cuts in 2025 and real GDP growth of 2.1% for the year.** With signs of softening economic growth in recent weeks, markets will look to whether FOMC members believe this will translate into lower GDP growth for the year and potentially more than two rate cuts. We'd align with market expectations that the Fed will hold its policy rate steady at tomorrow's meeting and expect Fed Chair Powell to reiterate that the U.S. economy remains on strong footing, allowing the Fed to be patient with further rate cuts. 
   
• International stocks rally, highlighting the value of diversification: While it has been a volatile start to the year in U.S. markets, with the S&P 500 logging it's first 10% correction since 2023 last Thursday, international equities have rewarded investors with well-diversified portfolios. The MSCI EAFE Index, which includes stocks from regions such as Europe and Japan, has gained over 10% through yesterday's close.* Additionally the MSCI Emerging Markets Index, which includes stocks from regions such as China and India, has gained over 5%.* The rally in international stocks has been driven by a combination of fiscal reform announcements in Europe and pro-business commentary from policymakers in China. While we believe it's too early to draw the conclusion that this is the beginning of a prolonged period of international outperformance versus the U.S., we do believe it highlights the importance of maintaining strategic allocations to international equities as part of a well-diversified portfolio. 
   

Brock Weimer, CFA
Investment Strategy

^{Source: *FactSet **December 2024 FOMC Summary of Economic Projections
MSCI EAFE and MSCI EM are total returns in USD.} 

• Stocks move higher for a second day – U.S. equity markets were higher on Monday, following a strong rebound on Friday. The S&P 500 was up about 0.85%, outperforming the technology-heavy Nasdaq. Investors were encouraged to see a rebound in U.S. retail sales for February, which climbed 0.2% for the month, after falling 0.9% last month*. Markets will also be awaiting the Federal Reserve interest rate decision this month, with investors expecting the Fed to keep rates steady at 4.25% to 4.5%*. More broadly, after averting a government shutdown on Friday, and now anticipating further tariff developments on April 2, markets are largely in wait-and-see mode in the weeks ahead. This may provide some relative calm in markets after a period of volatility and 10% correction in the S&P 500 since mid-February. 
   
• All eyes turn to the Federal Reserve – The Federal Reserve will hold its March FOMC meeting on Tuesday and Wednesday this week, with an interest rate decision and updated set of economic projections expected on Wednesday afternoon. In our view, the Fed will likely keep rates on hold at 4.25% to 4.5%, but the key takeaway will lie in the new "dot plot," which shows the best guess of the path of interest rates going forward. In December, the median Fed dot plot pointed to 2 rate cuts in 2025*, and investors will be watching to see if this is updated to reflect potentially 3 rate cuts, in-line with the current market expectation. In December, the Fed also saw U.S. economic growth for 2025 at 2.1% year-over-year*. Given the recent slew of softer economic data, markets will be focused on whether the Fed will downgrade this forecast for the year ahead. In our view, Powell and team will aim to strike a balance, underscoring that the economy and labor market currently remain in good shape, with inflation moving in the right direction, but the uncertainty around policy keeps them on hold until the economic impacts are better known.
   
• Diversification remains a key theme for 2025 – Overall, after two years of strong performance in the stock market, driven primarily by mega-cap technology and AI sectors, we have seen in 2025 thus far that diversification has been an important theme for portfolios. The broader stock market has been volatile with negative returns, and the uncertainty of tariffs and government policy remains an overhang. Nonetheless, there have been pockets of the financial markets that have held up well and had positive returns. These include areas like U.S. defensive and cyclical sectors, bond markets, and international stock markets. To us, this underscores the value of portfolio diversification. In fact, if you look at the returns of a simple 60-40 portfolio versus the S&P 500, you can see that balanced portfolios have offered downside protection this year. For long-term investors, market volatility and stock-market pullbacks are not pleasant, but they can offer opportunities – to rebalance or add quality investments across a diverse set of stocks, bonds and international markets.
   

Mona Mahajan
Investment Strategy

^{Source: *FactSet} 

• Stocks rise on lower chance of a government shutdown – U.S. equity markets traded higher on Friday, as risks of a government shutdown fell following Senate Minority Leader Chuck Schumer's statement that he would support the House-passed bill to extend funding for the government. Leadership favored growth-style sectors, with information technology and consumer discretionary among the top performers. However, all 11 sectors of the S&P 500 finished the day higher. Overseas, markets in Asia were higher overnight following an announcement that policymakers in China plan to increase support measures to stimulate consumption, providing a boost in sentiment to the region.* European markets closed higher as well on news that policymakers in Germany are making progress on a deal to increase spending on infrastructure and defense to stimulate economic growth.* Bond yields closed higher, with the 10-year Treasury yield finishing just above the 4.3% mark, while the 2-year yield rose to 4.02%.* 
   
• Government shutdown risks fade – Senate Minority Leader Chuck Schumer stated on Thursday he plans to vote to advance the Republican proposed funding bill to keep the government open, lowering the risk of a government shutdown. Republicans hold 53 Senate seats and will need 60 votes to prevent a filibuster, meaning support from both parties will be needed. Congress will need to pass a new spending bill by midnight on Friday to prevent a government shutdown, and a final vote is expected later this afternoon. While disruptive, government shutdowns have historically had limited impact on markets. In fact, during the last government shutdown from December 21, 2018 – January 25, 2019, the S&P 500 gained over 10%.* Additionally, the S&P 500 has been positive during each of the past five government shutdowns.* While a government shutdown would add to the recent mix of policy uncertainty, history suggests that the impact from a shutdown is short-lived and that markets tend to look through the uncertainty. Markets responded favorably to the lower probability of a shutdown, with U.S. equity markets broadly higher on Friday.
   
• Fed and consumer in focus for the week ahead – Monetary policy and consumer-spending trends will be in focus next week, with retail-sales data for February out on Monday and the FOMC meeting on Wednesday. Expectations are for the Fed to hold rates steady at Wednesday's meeting. However, with economic growth showing signs of slowing in recent weeks, markets now expect the Fed to deliver three 0.25% rate cuts in 2025, up from only one last month.** In addition to the interest-rate decision, next week's meeting will provide an update on policymakers economic projections, with markets likely focused on where FOMC members see the policy rate and inflation heading over the rest of the year. On the consumer front, markets will be watching to see whether the softer-than-expected January retail-sales report was a one-off or evidence of slowing consumer spending. Market expectations are for retail sales to grow by 0.8% in February after sales declined by 0.9% in January.* Despite recent signs of slowing economic growth, we'd view the recent data as more of a mid-cycle adjustment versus heading for a recession. The silver lining to slowing growth is that it could prompt the Fed to lower interest rates more aggressively throughout 2025 than was previously expected, perhaps providing support to the economy and markets.
   

Brock Weimer, CFA
Investment Strategy

^{Source: *FactSet **CME FedWatch Tool
Government shutdown dates from history.house.gov}