March Madness Continues

Performance for Week Ending 3.21.2025:

The Dow Jones Industrial Average (Dow) gained 1.2 percent, the Standard & Poor’s 500 Index (S&P 500) added 0.5 percent and the Nasdaq Composite Index (NASDAQ) finished up 0.2 percent. Sector breadth was negative with 7 of the 11 S&P sector groups closing lower. The Consumer Staples sector (-0.3 percent) was the weakest performer while Energy (+3.2 percent) was the strongest.

*See below for Index Definitions

MARKET OBSERVATIONS: 3.17.2025  – 3.21.2025

The S&P 500 finished the week higher, breaking a four-week losing streak. The gains were driven by a respite in new developments on the trade front as well as a mildly dovish update from Fed Chair Powell, who reassured investors that the economic impact of Trump's trade war seemed manageable, adding that recession risks remain low. Stocks rose on Friday after President Trump said there would be “flexibility” in his plan to impose blanket tariffs on most U.S. trading partners next month.

FOMC Meeting As expected, the Fed left their benchmark fed funds rate unchanged in the 4.25-4.50 percent range for a second consecutive meeting. The updated dot plot showed the median FOMC member still expecting two rate cuts in 2025, even as the distribution of responses shifted in a more hawkish direction with 8 of the 19 members expecting one or no cuts this year. The projections also saw 2025 core inflation revised 0.3 percent higher and GDP growth 0.4 percent lower. During the after-meeting press conference, Fed Chair Powell reiterated that policy was in a “good place” and that the Fed is not in a “hurry” to cut rates, while emphasizing “remarkably high” levels of uncertainty. Powell acknowledged that tariffs may delay “further progress” on inflation but said that the base case was the tariff impact on inflation would be “transitory” and noted that long-term inflation expectations remained anchored. On Friday, two Federal Reserve officials echoed Powell’s comments by downplaying the recent rise in inflation expectations but emphasized that the outlook is highly uncertain. New York Fed President John Williams and Chicago Fed President Austan Goolsbee both said the labor market and growth have been solid, and noted any inflationary impact from tariffs has the potential to be short lived.

Economic Roundup: US retail sales rose by less than forecast in February and the prior month was revised lower, adding to concerns of a pullback in consumer spending. The value of retail purchases, not adjusted for inflation, increased 0.2 percent, falling short of the 0.6 percent gain expected by forecasters. On a positive note, the so-called control-group sales — which feed into the government’s calculation of goods spending for GDP — increased 1 percent in February, reversing the prior month’s drop. On the housing front, sales of previously owned homes bounced back in February, spurred by a greater supply of houses and improved weather heading into the crucial spring period. Contract closings increased 4.2 percent to an annualized rate of 4.26 million in February while the supply of previously owned homes jumped 17 percent from a year ago to 1.24 million, the most for any February since 2020. Meanwhile, the Mortgage Bankers Association reported that the average rate on a 30-year mortgage rose for the first time since early January, hitting 6.72 percent from 6.67 percent in the prior week. On the labor front, applications for unemployment benefits were little changed last week at a relatively low level that underscores a resilient labor market.

Market Viewpoint: Despite recent market turbulence, driven more by fear than fundamentals, our favorable outlook on the equity market is unchanged, and we believe there is still money to be made this year. While near-term headline uncertainty may pose some downside risk, over the intermediate to longer-term, fundamental drivers, like the economy, earnings, and interest rates, drive stock prices. The macro environment is expected to remain supportive, with the U.S. economy on firm footing, albeit with slowing growth. The Fed is expected to continue easing policy, and while the path could prove uneven, rates are likely to drift lower over the next year. Importantly, the earnings growth outlook remains strong. Bloomberg consensus projects S&P 500 earnings growth of around 9.5 percent in 2025 and 14.2 percent in 2026. The combination of an accommodative Fed and brisk earnings growth creates a favorable backdrop for risk assets that should support the bull market. Still, with valuations elevated, earnings growth will likely be the main driver of performance, suggesting more modest gains compared to the past two years.

The Week Ahead: Inflation will be in focus this week with the February core Personal Consumption Expenditures Price Index (PCE) data due out on Friday. The core PCE—the Fed’s preferred inflation metric—is expected to show inflation remained relatively stable during the month, according to consensus expectations from Bloomberg. Other notable U.S. economic indicators due out include S&P Global’s US Purchasing Managers Indexes (PMI) for manufacturing and services on Monday, the Conference Board’s consumer confidence index on Tuesday, and the durable goods orders report for February on Wednesday. Quarterly earnings reports will be minimal with just four members of the S&P 500 scheduled to report fiscal quarter results. The Fed speaking calendar will pick up this week with nine appearances on the calendar. On the fixed income front, the Treasury will auction $69 billion in two-year notes on Tuesday; $70 billion in five-year notes on Wednesday; and $44 billion in seven-year notes on Thursday.

— By Michael Schwager, Chief Market Strategist, Managing Director

Definitions

The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally defined as the leaders in their industry. It has been a widely followed indicator of the stock market since October 1, 1928.

Wilshire 5000 Total Market Index^SM represents the broadest index for the U.S. equity market, measuring the performance of all U.S. equity securities with readily available price data. The index is comprised of virtually every stock that: the firm's headquarters are based in the U.S.; the stock is actively traded on a U.S. exchange; the stock has widely available pricing information (this disqualifies bulletin board, or over-the-counter stocks). The index is market cap weighted, meaning that the firms with the highest market value account for a larger portion of the index.

Standard and Poor's 500^© Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The NASDAQ Composite Index is a broad-based capitalization-weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market and Capital Market. The index was developed with a base level of 100 as of February 5, 1971.

This material contains opinions of the author, but not necessarily those of Guggenheim Partners, LLC or its subsidiaries. The opinions contained herein are subject to change without notice. Forward looking statements, estimates, and certain information contained herein are based upon proprietary and non-proprietary research and other sources. Information contained herein has been obtained from sources believed to be reliable, but are not assured as to accuracy. Past performance is not indicative of future results. There is neither representation nor warranty as to the current accuracy of, nor liability for, decisions based on such information. No part of this material may be reproduced or referred to in any form, without express written permission of Guggenheim Partners, LLC.