WEEKLY MARKET SUMMARY
Global Equities: Tariff worries outweighed inflation progress and pushed the S&P 500 into correction territory, down more than 10% off recent highs, although the index was able to recover some of the damage on Friday. At the end of the week, the S&P 500 finished -2.2% lower, while the Nasdaq Composite shed -2.4% and the Dow Jones Industrial Average pulled back -1.5%. Small caps were down -1.5% and have plummeted -16.1% from their November 2024 highs. Foreign developed markets have shown relative strength thus far in 2025 and continued to outperform their US counterparts with a -0.9% weekly decline. Emerging markets turned in a weekly gain of 0.4% as investors continue to diversify out of the uncertain US equity markets for the time being.
Fixed Income: Despite the turmoil in US equity markets, there has not been a major flight to safety of fixed income, as the 10-Year Treasury yield rose during the week to 4.32% amidst uncertainty over the Republican spending bill and a potential US government shutdown. High yield bonds have fared surprisingly well amidst the equity market selloff but finally slipped below their 50-day moving average for only the second time in 2025. Despite the technical caution signal, spreads have not substantially widened to the point where investors are pricing in a recession, and high yield bonds bounced along with stocks on Friday to end the week with a -0.7% weekly loss.
Commodities: US West Texas Intermediate (WTI) Crude prices ended the week relatively unchanged at $67.25 a barrel. Gold prices finally eclipsed $3,000/oz after testing the psychologically significant level for the last few weeks.
WEEKLY ECONOMIC SUMMARY
Cooler Inflation Data: Investors got a bit of good news on the inflation front after Consumer Prices cooled to 0.2% in February after rising by 0.5% in January. Core Prices (excluding food and energy) were also lighter than anticipated at 0.2%. The annual rate of headline CPI is now running at 2.8% while Core CPI is at 3.1%. The underlying data showed a big decline in Transportation Services to -0.8% in February, a welcome sign after the category surged 1.8% in January. Shelter inflation has also been steadily cooling, although home prices remain the biggest single driver of overall inflation.
Producer Prices Flatline: The Producer Price Index came in unchanged in February, although January was upwardly revised from 0.4% to 0.6%. Producer prices are considered a leading indicator of consumer price inflation, so the flat reading bodes well for March’s inflation reading. The Cleveland Fed is presently anticipating that the Consumer Price Index will be unchanged next month, per their Inflation NowCasting model.
Tariff Saga Continues: The tariff headlines were fast and furious this week, with nearly every day yielding a new threat. US tariffs on steel and aluminum were met by the European Union with tariffs on US whiskey, which then prompted retaliatory threats of a 200% surcharge on European alcohol from President Trump. Treasury Secretary Scott Bessent backed the tariffs in comments, stressing that the US is negotiating from a position of strength given the present trade imbalance.
CHART OF THE WEEK
The Chart of the Week shows a 10-year view of the S&P 500, highlighting corrections, which are defined as pullbacks of 10% or more from the prior high. The S&P briefly entered correction territory on Thursday before recovering some of the losses on Friday. While painful in the short term, corrections are not uncommon events, and the stock market has trended upwards over the long-term. What is uncommon is for a correction to occur while corporate earnings are strong, unemployment is low, and the economy is generally doing very well, as is the case with our present pullback in the markets. With solid fundamentals supporting the market, this pullback looks to be a healthy repricing of risk related to President Trump’s hardball tariff negotiations, which hopefully will resolve soon without significant damage to the economy.
