Weekly Market Commentary March 17th to March 21st 2025
This week the Federal Reserve had their two-day FOMC meeting to decide on interest rates and comment on the economy. As market participants expected, the Fed decided to leave interest rates unchanged. In the statement, they noted the economy appears to be expanding, unemployment is stabilizing, labor market conditions remain solid, and inflation remains somewhat elevated. The statement also recognized that uncertainty around the economic outlook has increased, and as a result the median projections for inflation, GDP, and unemployment worsened from December. The Fed also announced the slowing of quantitative tightening (QT) as they look to reinvest a larger percentage of U.S. Treasury maturity proceeds rather than letting them roll off the books. They are still anticipating two 25bp rate cuts this year, and the markets are projecting the first cut to come in June.
U.S. retail sales rebounded slightly in February, albeit below expectations, growing 0.2% in the month. The increase was driven by improved spending online and on healthcare products. However, the softness in service spending intensified, with food-service sales down 1.5% on the month. Increased uncertainty and slowing income growth likely contributed to the pullback in discretionary services spending.
After January’s dramatic drop in housing starts, largely driven by extreme weather and the LA wildfires, February saw an 11.2% increase in starts. The increase was driven by a surge in single-family and multi-family homes, particularly in the Northeast, South, and West. Despite the rebound in starts, building permits declined 1.2% on the month, with builder confidence declining in March due to tariff threats and concerns about rising construction costs. Sales of existing homes increased 4.2% to an annualized rate of 4.26 million, exceeding estimates. The supply of existing homes jumped 17% from last year as buyers and sellers come to terms with elevated mortgage rates, freeing up inventory and making a slight dent in prices.
The equity markets modestly snapped a four-week losing streak as selling pressure eased after officially reaching correction territory the week prior. The S&P 500 closed 0.5% higher to 5,667, the Nasdaq 0.2% higher to 17,784, and Dow Jones Industrials 1.2% higher to 41,985. U.S. Treasury yields fell slightly on the week, with both the 2-Year and the 10-Year Treasury yield falling 7bps to 3.95% and 4.25%, respectively.
Next week’s key economic data include Manufacturing and Services PMI, updated GDP, and Personal Consumption Expenditures.
