Market Update – March 3rd, 2025

Financial Markets

It was a negative week for the S&P 500 and Nasdaq, as strong but underwhelming Nvidia earnings failed to excite investors, and concerns over potential new tariffs added to market uncertainty. By Friday’s close, the Nasdaq Composite dropped nearly -4%, while the S&P 500 declined -1.45%. In contrast, the Dow Jones Industrial Average rose 0.57% as investors shifted toward value stocks. Bonds had a positive week, with the Barclays Aggregate Bond Index gaining 1.27%, reflecting demand for lower risk assets.

Source: Zacks

Market News

PCE Inflation

After January’s CPI report came in above expectations, attention was on the Federal Reserve’s preferred inflation metric, PCE inflation, last week. The January PCE report came in line with expectations, with both headline and core PCE inflation rising 0.3% month-over-month.

On an annual basis, headline PCE inflation stood at 2.5%, while core PCE inflation came in at 2.6%. While the data did not surprise markets, it reinforced a key challenge for the Federal Reserve—headline inflation has been gradually rising since reaching a low in September 2024, complicating the case for further rate cuts.

Source: US Bureau of Economic Analysis

Personal Income, Spending, Saving

Alongside the January PCE inflation report, the U.S. Bureau of Economic Analysis released data on personal income, spending, and savings for the first month of 2025. Personal income posted strong growth, rising 0.9% in January, while personal expenditures declined by -0.2%. As a result, the personal savings rate jumped to 4.6%. While January is typically a slower month for consumer spending, the significant gap between income growth and a pullback in spending could signal that consumers are becoming more cautious.

Source: US Bureau of Economic Analysis

Consumer Confidence

The Conference Board’s Consumer Confidence Index fell sharply in February, reflecting renewed pessimism about future economic conditions. The index dropped -7.0 points to 98.3, marking the largest one-month decline since August 2021.

The Present Situation Index, which assesses current business and labor market conditions, fell -3.4 points to 136.5, while the Expectations Index, which measures consumers’ short-term outlook for income, business, and employment, plunged -9.3 points to 72.9. This marks the first time since June 2024 that the Expectations Index has dipped below 80, a level that typically signals a potential recession ahead.

Consumers became more pessimistic about future business conditions and job prospects, while optimism about future income also declined. Views of current labor market conditions weakened, and pessimism about employment prospects reached a ten-month high. Inflation expectations rose sharply, with the average 12-month inflation outlook jumping from 5.2% to 6%.

The confidence decline was broad-based across all age groups, with the steepest drop among consumers aged 35 to 55. It also spanned most income groups, except for those earning under $15,000 or between $100,000 and $125,000 annually.

Source: The Conference Board

Initial Claim

Initial jobless claims for the week ending February 22 rose to 242,000, up 22,000 from the prior week and reaching a four-month high. This comes alongside other signs of a slowing labor market, including weaker consumer sentiment, slowing payroll growth, and the Trump administration’s efforts to slim down the federal workforce. However, it’s unclear if this uptick in unemployment claims will lead to a sustained weakening in labor market conditions or just short-term volatility. More data and time is needed to assess this potential trend.

Source: FRED

GDP Forecast

The Atlanta Fed’s GDPNow model now suggests the first quarter of 2025 could see negative GDP growth of around -1.5%. While the model is volatile and tends to become more reliable later in the quarter, its latest reading aligns with other economic warning signs, such as rising jobless claims and declining consumer confidence. Although this is just one model with significant limitations, it is currently signaling a potential economic contraction in Q1.

Source: Federal Reserve Bank of Atlanta

Summary

Markets ended the week lower, with both the S&P 500 and Nasdaq posting losses. Inflation remained a concern as January’s PCE report met expectations, but headline inflation has been creeping higher since late 2024, complicating the Federal Reserve’s ability to cut interest rates further. Meanwhile, consumer confidence plunged in February, jobless claims rose to a four-month high, and the Atlanta Fed’s GDPNow model signaled potential negative GDP growth in Q1 2025, adding to slowdown indicators.

We appreciate your continued trust.

Thank you,

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

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