Financial Update: Week of March 31, 2025
I hope this message finds you well! It has been a quarter of tariff-induced uncertainty and shifting sentiment across U.S. financial markets. As such, now is the perfect time to share an overview of what has occurred and what might be ahead. Read on for a summary of the first quarter, full of the information you need to know.
Major U.S. Stock Indexes
The S&P 500 began 2025 on strong footing until tariffs were imposed in February, with the index closing the quarter well off its February highs.
Here’s how major U.S. stock indexes fared in the first quarter:
The S&P 500 declined by 4.59%.
The Nasdaq 100 fell by 8.25%.
The Dow Jones Industrial Average decreased by 1.28%.
Trade Tensions & Diversification
First things first: tariffs. It appears that we are in a transition period as the Trump administration has decided to endure shorter-term economic difficulties to pursue long-term benefits.
These policy changes can be a source of anxiety for some, especially given the ongoing market volatility over the last month and a half. However, there is the possibility that central banks could step in to provide stability, according to some strategists, potentially creating opportunities in the bond market for certain investors.
Being diversified is essential for all long-term investors. Markets do not go up in a straight line, but investors may have gotten accustomed to that type of market environment in recent years. (We have been fortunate!) Dividend-paying industrials weathered the Q1 storm well, as highlighted above. (Look at the Dow Jones Industrial Average!). For a summary of where the U.S. stands tariff-wise, check out this tariff tracker.
Inflation
We saw a bit of a mixed picture for inflation data in the first quarter:
Consumer Price Index – CPI readings showed mixed data in the first quarter, with consumer inflation climbing from December through February and then falling in March. The highest month-over-month CPI increase for Q1 occurred in February, which approximately aligned with the S&P 500 reaching its peak for the quarter.
The yearly CPI inflation rate was 2.8% in March’s reading, coming down from the 3.0% reading in February. The Fed’s target inflation goal on an annual basis is 2.0%.
Producer Price Index – PPI data also appeared mixed in Q1. In February (March data release), the PPI for final demand demonstrated a year-over-year increase of 3.2%.
On the other hand, Core PPI, which excludes food and energy, experienced a slight decline of 0.1%, the first negative reading since July.
Reviewing wholesale inflation for the quarter as a whole, mixed is the word. And PPI featured a couple of upward revisions to the previous month’s data during the quarter.
Labor Market / Payrolls
The U.S. labor market showed signs of cooling in the first quarter as tariff uncertainty tested its resilience.
Slowing Job Growth: While the labor market remained strong, job growth began to slow, with nonfarm payrolls increasing by 151,000 in February (March data release). This was less than expected, following a downwardly revised 125,000 gain in January.
The current consensus on the labor market is uncertain and a bit sour, as inflation expectations over the next year have been rising in the consumer’s eyes. The labor shortage persists, however, and is real. So, we seem to be at a juncture of expectations (or fear) versus long-term resilience.
Of course, there are new uncertainties in play courtesy of trade tensions and their unknown ultimate effects, as evidenced by one out of four CFOs scaling back their hiring plans.
Unemployment Rate
American unemployment remains within the recent healthy range for the first quarter, although data shows that more Americans are worried about it. The unemployment rate rose to 4.1% in February 2025, up from 4.0% in January.
Fed, Rate Cut Probabilities
The overnight lending rate set by the Fed remained unchanged during the first three months of 2025. The January Federal Reserve meeting minutes revealed concerns about tariffs’ potential impact on inflation, leading to a cautious stance on rate cuts.
In the first quarter, the Fed lowered its 2025 economic growth forecast while raising its inflation projection. They maintained a “wait and see” approach amid tariff uncertainties, projecting two rate cuts in 2025 despite facing a more uncertain economic environment.
At the close of the final trading day of Q1, probabilities showed an 85.5% chance for rates remaining unchanged at the May Fed meeting.
Looking beyond May, the futures markets suggest a 64.3% chance of a quarter-point rate cut in June (data current as of market close on March 31st). Some analysts are eyeing July and perhaps several cuts.
Unhappy Consumers
Consumers are increasingly hesitant in the current environment. They have been through a lot over the years and perhaps have reached an inflection point.
In Q1 2025, U.S. consumer health metrics deteriorated significantly. The Conference Board Consumer Confidence Index fell from 104.1 in January to 92.9 in March, with the Expectations Index dropping to 65.2 — well below the recession threshold of 80 — indicating growing pessimism about the future.
The University of Michigan Consumer Sentiment Index also declined sharply to 57.0 in March, down 11.9% from February, driven by inflation fears with 1-year expectations at 5.0%.
International Exposure / Europe
Some investors are looking to Europe to sidestep the uncertainty present in the U.S. right now. There are many potential reasons to consider this.
Diversification can span the globe, not just sectors or asset classes. Several strategies are available if international diversification is on your mind.
A Reminder on Long-Term Discipline
It has been an eventful and uncertain quarter in the financial markets. Essentially, the highs in the S&P 500 coincided with the high print in CPI for the quarter, and sentiment dissipated as tariffs were imposed.
We have been here before. Well, not exactly here, but close enough. Markets absorb events and changes, such as the pandemic and inflation spikes. Let’s remember that these imposed tariffs were not unexpected like the pandemic; they were announced well in advance, despite the many daily twists and turns that occurred during their rollout.
Market sentiment is on the extreme fear end of the spectrum at the time of writing. Market corrections can be healthy, and certain long-term investors may find opportunities in the present equities landscape that did not exist just a mere two months ago.
That’s All, Folks!
With the above quarterly recap noted, how are things going in your neck of the woods? If first-quarter market developments, further diversification, or if there is anything on your mind, please feel free to reply to this email or call me.
I am always here as a resource for you!
Disclosure:
This material provided by Levitate. Levitate is not affiliated with Valmark Securities, Inc. and Valmark Advisers, Inc. Indices are unmanaged and do not incur fees, one cannot directly invest in an index. Diversification does not guarantee investment returns and does not eliminate the risk of loss. Past performance does not guarantee future results. The information provided has been derived from sources believe to be reliable, but is not guaranteed as to accuracy and does not purport to be complete analysis of the material discussed, nor does is constitute an offer or a solicitation of an offer to buy any securities, products or services mentioned.