Market Update – March 31st, 2025

Financial Markets

Stocks declined last week as new tariffs on the auto industry and concerns over additional tariffs potentially coming this week weighed on investor sentiment. Market pressure intensified on Friday after the latest PCE inflation data came in hotter than expected, raising fears of prolonged restrictive monetary policy.

As of the close on Friday, March 28, the Nasdaq Composite posted the steepest decline, falling 2.6% for the week, followed by the S&P 500, which lost 1.5%, and the Dow Jones Industrial Average, which declined 1.0%. Bonds, as measured by the Barclays Aggregate Bond Index, were flat for the week.

Source: Zacks

Market News

PCE Inflation

February PCE inflation came in higher-than-expected Friday morning last week, with headline PCE inflation posting at 2.5%, while core PCE inflation came in at 2.8%. On a monthly basis, PCE inflation rose 0.3%, and core PCE increased 0.4%. The S&P 500 fell as much as 2% on Friday in reaction to the report, along with concerns about impacts from new tariffs, potentially beginning in early April.

Source: US Bureau of Economic Analysis

Personal Income, Spending, and Saving. 

Released alongside the PCE inflation report, personal income, spending, and saving for the month of February revealed that while personal income grew, this increase did not translate into higher consumer spending last month. Personal income rose 0.8% in the month, exceeding expectations, while disposable income, which is after-tax income, rose by an even greater 0.9% in February.

Personal spending increased 0.4% in February, coming in lower than expected, despite the stronger income growth. Personal outlays, which include spending, interest payments, and transfer payments, rose 0.6% in the month. With income growth outpacing spending growth, the personal savings rate rose to 4.6%, marking two consecutive months of income growing at a faster rate than spending, signaling potential cautiousness from consumers.

Source: US Bureau of Economic Analysis

Consumer Confidence. The Conference Board’s Consumer Confidence Index fell by 7.2 points in March to 92.9, continuing a trend of weakening sentiment over the past several months. The Expectations Index, based on consumers’ short-term outlook for income, business conditions, and the labor market—dropped 9.6 points to 65.2. This marked the lowest level in 12 years and is well below the threshold of 80, which typically signals the possibility of a recession.

By demographic, the decline in confidence was driven by consumers aged 35 and over, while confidence rose slightly among consumers under age 35. The decline was broad-based across all income groups except those with household earnings above $125,000 per year.

Source: The Conference Board

New Tariffs. Adding to market volatility, the Trump administration announced new tariffs on the auto industry last week, imposing a 25% levy on cars not made in the U.S. According to the White House, roughly 50% of the cars purchased by Americans in 2024 were imported, suggesting these tariffs may have a significant impact on both domestic and international automakers. Stocks of major vehicle makers, including General Motors (GM) and Ford (F), fell following the news.

Source: Morningstar

New Home Sales

In the housing market, new home sales came in below expectations at 676,000 units sold in February, with 500,000 new homes still on the market. The median sales price for new homes fell slightly to $414,500, continuing a downward trend from a peak of $460,300 in October 2022. This signals a continued softening in the housing market, as affordability remains a challenge for many prospective buyers.

Source: FRED

Summary

Stocks fell last week as new auto tariffs and inflation concerns pressured markets. Core PCE rose 2.8% year-over-year, reinforcing fears of prolonged restrictive monetary policy. Personal income increased, but spending lagged, pushing the savings rate higher. Consumer confidence declined, with the Expectations Index hitting a 12-year low, while new home sales slowed, and prices continued their downward trend. Looking ahead, markets will be looking for further tariff announcements and the March jobs report this week.
  
We appreciate your continued trust.

Thank you,

Joseph M. Maas,
CFA, CFP®, ChFC, CLU®, MSFS, CCIM, CVA, ABAR, CM&AA

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