Market Update – March 24th, 2025

Financial Markets

Stocks posted modest gains last week as markets reacted to the Federal Reserve’s March meeting, where policymakers held interest rate expectations steady despite forecasting slightly weaker economic growth than last quarter. The Dow Jones Industrial Average led with a 1.2% gain, followed by the S&P 500, which rose 0.51%, and the Nasdaq Composite, up 0.17%. Bonds also gained, with the Barclays Aggregate Bond Index up 0.47%.

Source: Zacks

Market News

Federal Reserve Meeting. Last Wednesday marked the second Federal Reserve meeting of 2025, with the central bank holding rates steady at 4.25% – 4.50%, in line with expectations. This decision extends the Fed’s pause on rate changes, keeping monetary policy at a relatively restrictive level. Since the pause in rate cuts was widely anticipated, market attention shifted to the Summary of Economic Projections (SEP), which provided insights into the Fed’s updated economic outlook.

Source: FRED

March’s SEP revealed a more cautious economic forecast. The Fed now expects real GDP growth of 1.7% in 2025, down from the 2.1% forecasted last quarter. Projections for 2026 and 2027 were also revised lower, signaling a weaker growth outlook.

At the same time, inflation and unemployment expectations increased. The Fed now projects PCE inflation at 2.7% for year-end 2025 (up from 2.5% in the last SEP), while the unemployment rate forecast rose to 4.4% for year-end 2025.

Despite lower growth forecasts, interest rate expectations remained unchanged, with the Fed still projecting two 25-bps rate cuts this year. Overlooking the weaker growth expectations, markets responded positively, relieved that the Fed appears to be remaining on track to cut rates as expected this year.

Source: Federal Reserve

Looking ahead, the market is currently pricing in a 63.5% chance of a 25-bps cut by June, followed by another expected in September. With monetary policy remaining a dominant force in the economy, investors will be closely monitoring upcoming Fed meetings and economic data for further direction on interest rates.

Source: CME Group Fed Watch, as of 3/21/2025

Leading Indicators. The Conference Board’s Leading Economic Index (LEI) declined again in February, reinforcing projections of slower economic growth ahead. Among its components, consumer expectations for future business conditions were the biggest drag on the index, down -0.19 in the month, as consumer sentiment turned more pessimistic. New orders also weighed heavily on the LEI in February, down -0.15 MoM.

The yield curve’s re-inversion, a negative signal over the past six months, remained relatively unchanged in February but has been a persistently bearish leading indicator in recent years. On the positive side, gains in the S&P 500 and increases in average weekly manufacturing hours provided some support to the index. Overall, although the LEI is no longer signaling an imminent recession, it continues to indicate slower growth ahead.

Source: The Conference Board

Retail Sales. Retail sales rose 0.2% in February, falling short of expectations but still 3.1% higher year over year—a pace slightly above February’s CPI inflation rate of 2.8%. Among categories, food and beverage store sales increased 3.9% year over year, while nonstore retailers (which include online retailers) saw a 6.5% annual increase. Consumer spending has been a large driver of U.S. economic resilience, but if retail sales continue to underperform expectations, it could put a drag on the economy.

Source: US Census Bureau

Existing Home Sales. Existing home sales rose 4.2% month over month in February but were 1.2% lower than a year ago. The median sales price climbed 3.8% year over year to $398,400, continuing its steady upward trend, while housing inventory increased slightly, rising from 3.0 months to 3.5 months of supply.

With mortgage rates still elevated and the Federal Reserve expected to slowly lower rates in the coming years, the upcoming spring homebuying season will be a key indicator of consumer sentiment. A pickup in activity could suggest that more buyers are adjusting to the “new normal” of higher borrowing costs.

Source: National Association of Realtors

Summary

Stocks posted modest gains last week as the Fed held rates steady at 4.25%–4.50% while lowering its 2025 GDP growth forecast to 1.7% and raising inflation and unemployment projections. Even with signs of slower economic growth, markets responded positively, focusing on the Fed’s expected rate cuts later this year. Economic data showed weaker than expected retail sales and soft leading indicators, while existing home sales improved slightly despite still-elevated mortgage rates.

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