By Ben Norris, CFA, Senior Investment Strategist, Vice President
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The luck of the Irish was with investors last week as both stocks and bonds were able to manage gains despite intra-week volatility tied to the U.S. Federal Reserve’s (Fed’s) March policy meeting and continued uncertainty tied to U.S. trade policy. The S&P 500 (SPX) was able to manage a gain of 0.5% after recording losses in each of the prior four weeks and has moved out of correction territory. Still, the index is more than 6% off its high set of February 19. Within U.S. markets, leadership continues to rotate toward defensive stocks as investors seek the safety of companies with more certain earnings and less exposure to potential tariffs and government spending cuts. The best-performing major U.S. market index is the Russell 1000 Value, which has maintained a gain of 1.6% year-to-date as the index has more exposure to defensive sectors like healthcare, utilities and consumer staples. SPX is down 3.3% this year, while the worst-performing index is the small-cap focused Russell 2000 Growth, which is 8.5% lower over the same period.
More broadly, market leadership is now in the hands of bonds and international stocks. China, which has been out of favor with global investors for much of the last five years, is seeing its fortunes return. The MSCI China index is up 18% in 2025 as the Chinese government’s efforts to backstop its economy are beginning to take hold. European stocks are also outperforming the United States as investors begin to realize the value in European equities is too compelling to ignore. Over the last decade or so, investors have been quick to shun international stocks, making the argument that economic growth in the United States should be supportive of stronger corporate results and, in turn, higher valuations. Now that superior U.S. economic growth is less certain, investors are looking elsewhere for investment opportunities.
Treasury yields ended the week lower as investors responded to the Fed’s March policy meeting and better-than-anticipated economic data. The Fed maintained its target range for interest rates last week at 4.25%-4.5%, as widely expected. Fed policymakers have remained patient as they respond to shifting market conditions and slowing economic growth. While the Fed held steady on rates, it did announce that it will slow its balance sheet reduction program (known as quantitative tightening). Beginning in April, Fed balance sheet holdings of U.S. Treasuries will be reduced by just $5 billion per month, down from $25 billion currently. For the past three years, the Fed has been whittling down its portfolio of bonds that it built up during the Covid-19 stimulus campaigns. The change is a signal to markets that the Fed is still committed to easing policy but feels that a less aggressive approach is more warranted than a full-fledged rate cut. In practice, the change means that the Fed will buy a bit more Treasuries than it does currently, which won’t necessarily prevent rates from moving higher but should help contain the upper limit of where rates can go from here.
While no change in interest rates and a small change to quantitative tightening were the headline-grabbing developments to come out of last week’s Fed meeting, there were some more subtle takeaways for investors. The ongoing global trade conflict being waged by the Trump administration remained the elephant in the room for the Fed. Just as investors have grown more cautious in recent weeks, the Fed remains hesitant to shift policy significantly while U.S. trade policy is still being refined. The Fed’s updated economic projections reflected this caution. While the “dot plot” still indicates expectations for two 0.25% rate cuts in 2025 and 2026, the outlook for 2025 gross domestic product (GDP) growth fell to 1.7%, down considerably from 2.1% in December. At the same time, inflation is expected to continue at an annualized rate of 2.7% this year, up from the prior expectation of 2.5%. The shifts in outlook hint that the Fed is concerned about the impact of tariffs on both inflation and economic growth.
As we think about how the rest of the year could progress, the Fed has two likely paths laid out ahead. If tariffs are less significant than expected, economic growth should continue, but other factors could limit additional Fed easing. In contrast, if tariffs and government efficiency efforts lead to significant setbacks in the labor market, the Fed could ease much more than is currently projected and deliver more than 100 basis points of rate cuts.
The key date for tariffs is April 2, although that could change on any given day at this point. The focus of this round appears to be reciprocal tariffs on automobiles, pharmaceuticals and semiconductors that would seek to put U.S. tariffs on level ground with duties imposed by trading partners. Recent developments point to a less aggressive path on April 2 as some-sector specific tariffs may be abandoned in response to corporate pushback. Investors and economists alike continue to tease out what impact tariffs will ultimately have on the markets and economy. Recent updates to forecasts from strategists suggest that we should prepare for slower economic growth and, as a result, weaker earnings growth. Analysis from JPMorgan suggests that for each 10-15% increase in the U.S. tariff rate, U.S. GDP growth could take a 1.0% hit, while S&P 500 earnings could fall 3.5% from current projections. At the same time, increased uncertainty and weaker growth likely mean the United States will see its valuation premium deteriorate relative to global markets. The U.S. Economic Policy Uncertainty Index has more than doubled since November; during the same period, the gap between the S&P 500 earnings yield and the 10-year U.S. Treasury yield has widened significantly, indicating investors are increasingly risk-averse.
On a different note, March 24 marks the 25th anniversary of the S&P 500’s closing high during the dot-com bubble. Stocks fell nearly 50% from those levels and took the better part of a decade to return to those highs. However, markets are significantly different today than they were in 2000, and while we could have a bumpy road ahead, I would argue that markets are in a much better place today than they were then.
Looking to this week, data on the U.S. housing market and economic activity will be in focus. Thursday’s update on U.S. GDP will be closely watched before Friday brings an update on the Fed’s preferred measure of inflation.
| TIME (ET) | REPORT | PERIOD | MEDIAN FORECAST | PREVIOUS |
| MONDAY, MAR. 24 | ||||
| 9:45 am | U.S. Services PMI | March | 51.5 | 51.0 |
| 9:45 am | U.S. Manufacturing PMI | March | 51.5 | 52.7 |
| TUESDAY, MAR. 25 | ||||
| 9:00 am | S&P Case-Shiller Home Price Index | Jan. | 4.4% | 4.5% |
| 10:00 am | Consumer Confidence | Mar. | 95.0 | 98.3 |
| 10:00 am | New Home Sales | Feb. | 679,000 | 657,000 |
| WED., MAR. 26 | ||||
| 8:30 am | Durable Goods Orders | Feb. | -1.0% | 3.2% |
| THURSDAY, MAR. 27 | ||||
| 8:30 am | U.S. Gross Domestic Product | Q4 | 2.3% | 2.3% |
| 8:30 am | Initial Jobless Claims | Mar. 22 | 226,000 | 223,000 |
| 8:30 am | U.S. Trade Balance in Goods | Feb. | — | -$153.3B |
| 10:00 am | Pending Home Sales | Jan. | 1.0% | -4.6% |
| FRIDAY, MAR. 28 | ||||
| 8:30 am | Personal Income | Feb. | 0.4% | 0.9% |
| 8:30 am | Personal Spending | Feb. | 0.6% | -0.2% |
| 8:30 am | PCE Price Index (y/y) | Feb. | 2.5% | 2.5% |
| 8:30 am | Core PCE (y/y) | Feb. | 2.7% | 2.6% |
| 8:30 am | Consumer Sentiment | Mar. | 57.9 | 57.9 |
Links to previously published commentaries can be found at benjaminfedwards.com/Latest Investment Insights/Market Commentary/Market