Weekly Market Performance — March 21, 2025

Markets Blog

David Matzko, LPL Research

LPL Research provides its Weekly Market Performance for the week of March 17, 2025. U.S. equities ended mixed this week, reversing economic reassurance-fueled gains following Wednesday’s Federal Reserve (Fed) rate decision. International stocks ended mostly higher with positive returns across the pond and mixed results in Asia. Meanwhile, Treasury yields moved lower over the last five days while gold logged fresh record highs and oil prices advanced.

Index Performance

U.S. and International Equities

U.S. Equities: Economic reassurance and dovish takeaways from the March Fed policy meeting lifted major averages mid-week before trimming week-to-date gains to close with mixed results. Growth names extended recent underperformance compared to their value counterparts, while small cap stocks topped their large cap peers.

With the expectation for the Fed to hold rates steady, Wednesday’s policy meeting was expected to be a non-event. The Fed confirmed those expectations; however, equity markets received some support from positive early takeaways from the policy statement and press briefing with Fed Chair Jerome Powell assuaging economic growth concerns. Powell stated that the impacts of tariffs on inflation would likely not be permanent (reviving the phrase “transitory”), while markets clung to an easing of quantitative tightening (QT) and an unchanged median rate expectation as additional positive takeaways. Markets made it through the week with no new tariff tape bombs, and stocks initially shrugged off heightened levels of uncertainty noted in the policy statement. Nonetheless, mid-week strength evaporated as investors grappled with ongoing tariff jitters colliding with lackluster corporate guidance to end the week. Equities reversed weekly gains on Friday after FedEx (FDX) slashed earnings forecasts due to uncertain shipment demand and inflationary concerns, and Nike (NKE) signaled profitability concerns due to U.S. tariffs in North America.

International Equities: European equities broadly delivered a modest gain this week despite trimming gains during Thursday and Friday’s sessions. Optimism from the passage of the landmark spending bill in Germany through the lower and upper houses of parliament were overshadowed by lingering trade concerns and Russia’s rejection of a negotiated ceasefire in Ukraine, which contributed to the late-week risk-off tone. Meanwhile, outside of Wednesday’s Fed decision, policy decisions from local central banks drew investor focus the following day. Among highlights, the Bank of England (BOE) held rates steady as expected, while the Swiss National Bank (SNB) slashed its key policy rate by another 0.25%.

Major markets in Asia ended mostly higher despite cautious sentiment amid ongoing U.S. trade concerns, ending the week with relatively listless trading. Artificial intelligence (AI) enthusiasm in Hong Kong took a blow as investors booked some profits from the recent rally, exacerbated by Chinese tech leader Tencent’s weaker-than-expected AI investment pledge overshadowing a new model from competitor Baidu. Sharp selling in Hong Kong spilled over to mainland China after Monday’s announcement of bolstered wages and pension plans, consumption finance from lenders, and potential childcare subsidies failed to maintain traction. Gains in South Korea and Taiwan received a lift from semiconductor names and NVIDIA (NVDA) suppliers after NVDA CEO Jensen Huang unveiled plans to procure U.S.-made chips. Japan ended higher after the Bank of Japan (BOJ) kept its benchmark rate unchanged, noting patience with rate hikes due to trade policy risk, but policymakers did note that wages and prices are on track.

Fixed Income, Currency, and Commodity Markets

Fixed Income: The Bloomberg U.S. Aggregate Index traded higher this week with Treasury yields declining in the latter half of the week as the bond market speculated on the Fed’s rate cutting path. The rate-sensitive two-year yield traded 10 basis points (0.1%) lower, while the 10-year yield traded nine basis points (0.09%) lower.

At Thursday’s Fed meeting, the FOMC decided to slow the pace of balance sheet runoff (also known as quantitative tightening, or QT) by $20 billion per month by lowering the monthly cap for Treasury runoff from $25 billion to $5 billion per month. Interestingly, Fed Governor Christopher Waller formally dissented from the Committee’s decision to slow the pace of runoff, preferring to keep runoff unchanged. While not surprising — it was strongly hinted at in the January Fed meeting minutes — it does remove, at least for now, a risk to markets as it decreases the risk that QT goes too far and disrupts short-term funding markets. So far, the Fed has unwound more than $2 trillion from its balance sheet, leaving about $6.8 trillion on its balance sheet — well above the pre-COVID-19 levels around $4 trillion. It was noted though that this move will likely be temporary, with the Fed reinstating QT after the debt ceiling discussions are over. With the Treasury Department still unable to issue net new Treasury securities and the Fed slowing runoff, it isn’t surprising to see Treasuries rally. However, once the debt ceiling discussions pass, conditions will likely reverse and could put upward pressure on yields.

Commodities and Currencies: The Bloomberg Commodities Index printed another mild gain after pulling back from Thursday’s weekly high. West Texas Intermediate (WTI) crude oil delivered a solid gain, supported by another ramp in U.S. sanctions on Iran-related crude exports, targeting a Chinese refiner for the first time. Concerns about tighter supply added to upside pressure from the latest output plan from the OPEC+ producer group. Gold extended last week’s advance with the Fed’s slower growth projections adding to economic growth jitters, fueling additional haven buying of bullion. The abrupt end to the cease-fire in Gaza early this week sparked geopolitical concerns, aiding gains as the yellow metal cruised past the $3,000/oz mark to record highs. In currencies, the dollar edged higher after the Fed reiterated its patient stance toward rate cuts and positive takeaways from jobless claims data. Meanwhile, euro profit taking weighed on Europe’s shared currency and the yen ended little changed, both supportive for the greenback.

Economic Weekly Roundup

Are Leading Indicators No Longer Leading? The Conference Board’s metric has remained below pre-pandemic levels since December 2022. Is this index no longer a signal, but just noise? Feelings – a.k.a. “consumer expectations” - continue to drive this index lower and have been a net drag since mid-2021. Apparently, the vibecession continues. The better component is the credit index, which tracks swap spreads, bank lending conditions, and debt balances at margin accounts. Conditions improved recently. The steady decline in new orders is a clear signal of a slowdown and that signal started emerging in early 2022. Although, orders for nondefense core capital goods show stability.

Without a doubt, the economy started showing signs of a slowdown a while ago and this metric is helpful in reminding investors of the fragility of business conditions. The two main risks globally are trade uncertainty and stagflation. These risks are not just in the U.S. but also in international economies, especially in the U.K. as highlighted in Thursday morning’s press release from the Bank of England. Global investors should brace for heightened volatility as the global economy adjusts to the new regime.

No Longer “In Balance”. As growth prospects falter and inflation remains sticky, we should expect investors to get more worried about stagflation. As expected, the FOMC did not change the target rate, but the Fed will slow the pace of balance sheet runoff. The dollar weakened on Wednesday as Fed officials are more downbeat about growth and increased uncertainty. Fed staff expect growth to be 1.7% by the end of 2025, down from the December forecast of 2.1%. The unemployment forecast rose to 4.4% from 4.3%. Core inflation – on an annual basis – is expected to be 2.8%, up from 2.5% estimated in December. If the Fed shifts focus to recession and growth fears, the committee could resume cutting rates to stimulate a faltering economy, but they are in a tight spot given the uncertain impacts from a trade war.

No surprise that the monetary policy-setting committee kept target rates unchanged on Wednesday. The committee is in the midst of policy fog as they await the impact from upcoming tariffs. The updated projections are more downbeat and will place downside pressure on the dollar in the near term. Despite this month’s inflation data to have risks to the upside, we should expect core inflation to decelerate by the summer, in time for the Fed to cut in June.

The Week Ahead

The following economic data is slated for the week ahead:

• Monday: Chicago Fed National Activity Index (Feb), S&P Global U.S. Manufacturing, Services, and Composite PMIs (March preliminary)

• Tuesday: Philadelphia Fed Non-Manufacturing Activity (Mar), FHFA House Price Index (Jan), S&P Case-Shiller 20-City and U.S. Home Price Indexes (Jan), New Home Sales (Feb), Conference Board Consumer Confidence Report (Mar), Richmond Fed Manufacturing Index (Mar), Richmond Fed Business Conditions (Mar), Building Permits (Feb final)

• Wednesday: MBA Mortgage Applications (Mar 21), Durable Goods Orders (Feb preliminary), Capital Goods Orders & Shipments (Feb preliminary)

• Thursday: GDP Annualized (4Q third reading), Wholesale Inventories (Feb preliminary), Personal Consumption (4Q third reading), GDP Price Index (4Q third reading), Core PCE Price Index (4Q third reading), Advance Goods Trade Balance (Feb), Initial Jobless Claims (Mar 22), Retail Inventories (Feb), Continuing Claims (Mar 15), Pending Home Sales (Feb), Kansas City Fed Manufacturing Activity (Mar)

• Friday: Personal Income (Feb), Personal Spending (Feb), Headline and Core PCE Price Index (Feb), University of Michigan Consumer Sentiment Report (Mar final), Kansas City Fed Services Activity (Mar), Bloomberg U.S. Economic Survey (Mar)

IMPORTANT DISCLOSURES

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors. To determine which investment(s) may be appropriate for you, please consult your financial professional prior to investing.

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This material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.

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