Weekly Investment Perspective

Following a bruising four week sell-off that saw the S&P 500 briefly dip into correction territory, U.S. equity markets managed to find some footing last week and have started this week on a constructive tone following several reports this weekend that upcoming tariff increases may be more measured than initially feared. However, many investors remained braced for continued market turbulence amid a dynamic and unpredictable fiscal policy backdrop. For the week, the S&P 500 and Dow Jones gained 0.5% and 1.2%, respectively, while the tech-heavy NASDAQ eked out a slight gain of 0.2%. Meanwhile, international equities continued to edge higher and added to year-to-date outperformance with the MSCI All Country World ex-U.S. index gaining 1.0%.

Investor sentiment got a bit of a reprieve over the weekend with news that the Trump Administration is narrowing the list of reciprocal tariffs slated to go into effect on U.S. trading partners on April 2. The White House is set to exempt some countries from reciprocal tariffs, including those that don't have tariffs on American products and those with which the U.S. has a trade surplus. Additionally, tariffs on sectors like automobiles, pharmaceuticals, and semiconductors will likely be delayed after being expected to go into effect on April 2. However, the fate of those sectoral tariffs alongside the levies on Canada and Mexico, remains very fluid. The current plans will still materially raise tariffs on significant trading partners to levels not seen in decades.

On the economic front, the Federal Reserve concluded its Federal Open Market Committee (FOMC) March meeting on Wednesday. The Fed chose to keep rates steady at 4.25% - 4.50% while at the same time slowing its balance sheet runoff, raising its inflation expectations, and lowering its 2025 GDP growth forecast. The outlook for economic growth for this year was lowered to 1.7%, down from 2.1% in December. The FOMC raised its inflation expectations, with the Fed’s preferred measure of inflation, Personal Consumption Expenditure (PCE), at 2.7% for 2025, up from 2.5% previously. These projections show that the Fed expects tariffs to slow economic growth and trigger a one-time adjustment in prices that leads to a short-term rise in inflation. The fed funds rate’s “dot plot” still shows two cuts each for 2025 and 2026. The somewhat dovish tone projected by Chair Powell during his post-decision remarks, as he used the word "transitory" to describe the inflationary effects from tariffs set the stage for a mid-week rally that faded into the week's close. Other economic data releases of note included retail sales, housing starts, Leading Index, and initial jobless claims. Many of the data points continue to reflect mixed signals on the state of the consumer and the strength of economy.

There are several potential market-moving economic data points this week, including updates on consumer confidence, U.S. GDP, and durable goods orders, but the highlight of the week will be the February PCE report due out on Friday as it remains a key barometer in the Fed’s ability to ease rates lower this year. Core PCE inflation is expected to have ticked higher to 2.7% year-over-year compared to 2.6% in January.

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