Monthly Market Insights | March 2025

U.S. Markets

Stocks stumbled in February as stubborn inflation, mixed economic signals, and an evolving trade policy weighed on investors’ minds.

The Dow Jones Industrial Average declined 1.58 percent while the Standard & Poor’s 500 Index fell 1.42 percent. The tech-heavy Nasdaq Composite dropped 3.97 percent.1

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Tariff Talk

News of new tariffs on Mexico, Canada, and China caused stocks to dip early in the month, only to rebound when the Mexico and Canada tariffs were delayed. A mixed jobs report and a warmer-than-expected inflation outlook added to the unsettled trading.2,3

Despite investor concerns, stocks bounced back thanks to the economy's strength. However, volatility picked up after comments from Fed Chair Powell informed lawmakers the central bank doesn’t “need to be in a hurry” to lower interest rates further.4

S&P 500 Hits New High

Following the Presidents’ Day holiday, markets rallied, shaking off disappointing housing starts data and the aforementioned tariff talk. The S&P 500 hit its third record close of the year on Wednesday, February 19.5

Stocks then fell over the second half of the month as concerns about sticky inflation, more tariff talk, and the pace of economic growth rattled investors.

Mixed Economic Signals

A weaker-than-expected outlook from a mega-retailer put stocks under pressure and reinforced some growing concerns that the economy may be slowing. In addition, investor concerns about the labor market were echoed by Atlanta Fed President Raphael Bostic who commented that while the overall job market was stable, signs of a slowdown were “accumulating.”6

As the month came to a close, an upbeat inflation report led to a powerful rally. The Fed’s favorite core inflation measure hit 2.6 percent in January, which aligned with forecasts.7

Sector Scorecard

Although the broader indexes were lower, several sectors posted gains. Real estate picked up 4.18 percent, Consumer Staples rose 3.99 percent, and Utilities tacked on 1.72 percent. Financials and Healthcare also posted gains. On the downside, Consumer Discretionary was the hardest hit, falling 6.98 percent. Technology, the largest sector, fell 2.29 percent for the month.8

What Investors May Be Talking About in March

In the month ahead, expect some attention to shift to European stocks, which have outperformed their U.S. counterparts so far in 2025.

Morgan Stanley’s Europe, Australasia, and Far East (EAFE) index, which measures developed global markets outside of the U.S., has notched a solid gain this year putting it far ahead of the S&P 500 through February.9

What sparked the rally? Market watchers say it’s due, in part, to higher forward earnings estimates for European countries.10

World Markets

The MSCI EAFE Index added 1.80 percent in February, handily beating all three major U.S. market indices for the second month in a row.11

Nearly all European markets advanced over the month, which fueled part of the gain. Spain (+7.91 percent) had the best month, followed by Italy (+5.99 percent), Germany (+3.77 percent), France (+2.03 percent), and the United Kingdom (+1.57 percent); all posted solid gains.12

Outside of Europe, markets were mixed. China’s Hang Seng index rose an eye-catching 13.75 percent, but Japan’s Nikkei was down 6.11 percent.13

Indicators

Gross Domestic Product (GDP)

The economy grew at an annualized 2.3 percent in Q4, driven primarily by consumer spending. For the full year, GDP grew 2.5 percent, compared with 3.2 percent growth in 2023. Q4 marked the ninth of the past 10 quarters in which year-over-year GDP growth exceeded 2 percent.14

Employment

Employers added 143,000 jobs in January, compared with the 169,000 economists forecasted. Unemployment ticked down to an annualized 4.0 percent in January over the prior month; economists had expected it to hold at 4.1 percent. Wage growth accelerated, rising 0.5 percent in January—faster than expected.15

Retail Sales

Consumer spending fell 0.9 percent in January. Economists were looking for a 0.1 percent decline. Severe winter weather, the wildfires in Los Angeles, and a low supply of motor vehicles all contributed to the decline.16

Industrial Production

Industrial output rose 0.5 percent in January, exceeding expectations. Much of the increase came from aircraft and aircraft parts production.17

Housing

Housing starts fell 9.8 percent in January over the prior month, missing expectations. The decline was driven primarily by weather-related disruptions and higher mortgage rates. Regionally, declines were steepest in the Northeast and the South, while the West posted a sharp increase. Year over year, total starts were down 0.7 percent.18

Sales of existing homes fell 4.9 percent. The median sales price of existing homes was $396,900, a 4.8 percent rise from a year prior.19

New home sales slid 10.5 percent in January due to higher mortgage rates and higher prices. The median new home sales price in January was $446,300, compared with $415,000 in December. There were 495,000 unsold new homes on the market in January, up 7.4 percent from a year prior.20

Consumer Price Index (CPI)

Consumer prices rose a seasonally adjusted 0.5 percent in January, higher than the 0.3 percent economists expected. The uptick was primarily driven by higher gasoline, fuel oil, and natural gas prices, as well as a rebound in used car prices. Core inflation, which excludes volatile food and energy prices, rose 0.4 percent—also higher than expected.21

Durable Goods Orders

Orders of manufactured goods designed to last three years or longer rose 3.1 percent in January, beating economists’ expectations for a 2 percent gain.22

The Fed

While the Federal Open Market Committee (FOMC) did not meet last month, the Fed was still on investors’ minds as Fed Chair Jerome Powell visited Washington, DC, and minutes from the January FOMC meeting were released.

Testifying before the Senate Banking Committee on February 10, Chair Powell told lawmakers the Fed doesn’t “need to be in a hurry” to lower interest rates further given the economy was currently “strong overall.”23

The FOMC’s next meeting is scheduled for December 17-18.

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