Market Digest: T, RIO

Argus

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Mar 28, 2025

Summary

Market successful Watch-and-Wait Mode The Federal Open Market Committee (FOMC) of the U.S. Federal Reserve concluded its March 2025 gathering astatine mid-month and, arsenic expected, maintained its fed funds people astatine the 4.25%-4.50% level. This marked a 2nd consecutive gathering successful which the Fed stood pat, aft cutting rates 3 times for a cumulative 100 ground points (bps) successful autumn 2025. Argus believes this non-decision reflects the Fed's ongoing concerns with ostentation arsenic the cardinal slope monitors the wide economy. The Fed had been mostly sanguine astir the system successful the past 2 years, but present appears to beryllium acknowledging caller strains successful the outlook. The Fed's intimately studied post-meeting connection added connection that 'uncertainty astir the economical outlook has increased.' It besides deleted connection stating that 'risks to achieving employment and ostentation goals are astir successful balance.' The expanding caution from the Fed is being echoed by the banal market. While the wide inclination is down, beardown selling days are being punctuated by crisp upward surges. The volatility successful stocks is not truthful overmuch successful effect to circumstantial economical information oregon net releases, but alternatively to argumentation signals from Washington. We judge this uncertainty is apt to persist successful the intermediate word -- astatine slightest until the last tariff operation is certified and enacted. A 2nd accommodation play could travel arsenic implemented tariffs interaction user and concern spending. After that, investors whitethorn settee into a caller reality. The Markets successful March With a azygous trading week remaining successful March 2025, the S&P 500 was down 3.9% for the month. That follows a diminution of 1.4% successful February and a 2.7% summation successful January connected pre-inauguration optimism. The marketplace declined done overmuch of March arsenic the president promised caller tariffs, including immoderate triple-digit-percentage threats successful effect to retaliatory tariffs from different nations. Stocks past rallied connected 3/24/25 connected rumors that helium mightiness intermission tariffs scheduled for April 2. For the twelvemonth to day arsenic of 3/21/25, the S&P 500 was down 3.3% connected a total-return ground (including dividends). The DJIA was down 0.9% twelvemonth to date, portion the Nasdaq Composite was disconnected 7.8%. Among indices successful our survey, lone the Wilshire Large Cap Value was positive, with a 0.8% gain. Wilshire Large Cap Growth is disconnected 7.1% twelvemonth to date, different motion of accepted enactment being flipped connected its caput this year. The Russell 2000 is down 7.5% year-to-date. The accepted contented is that smaller-cap constituent companies successful this scale would beryllium much apt to person a domestically focused gross base. Despite that accepted wisdom, successful caller years the Russell 2000 has tracked show of the maturation indices portion showing small sensitivity to tariff effects. At the assemblage level, enactment has firmly rotated distant from maturation and to defensive, income-oriented, and cyclical sectors. The champion assemblage twelvemonth to day is Energy, up astir 8%. This enactment is somewhat surprising, fixed that vigor prices for astir of the archetypal 4th of 2025 person been beneath mean prices for 2024. Oil prices person jumped higher connected Washington's pledge to property immoderate aboriginal Houthi attacks to Iranian influence. Energy net could besides plaything to affirmative against casual year-earlier comps arsenic soon arsenic the 1Q25 EPS season, though that modulation is much apt successful 2Q25 season. Healthcare is successful 2nd spot twelvemonth to day with a 7% gain, followed by 4% for Utilities. Healthcare is positioned for aggregate quarters of EPS maturation aft posting antagonistic net each crossed 2024. Utilities are benefiting from the diminution successful semipermanent rates, which is causing enslaved investors to question income successful higher-yielding banal sectors. The diminution successful rates successful 2024 was driven by optimism connected the gait of Fed complaint cuts. In 2025, the diminution successful agelong rates is much attributable to safe-haven investing successful Treasuries among Washington argumentation turmoil. A fistful of sectors -- Financial, Real Estate, Materials, and Consumer Staples -- are each up astir 2% twelvemonth to date. Industrials are fractionally positive. Eight sectors are higher successful 2025 amongst a down market. The 3 sectors successful antagonistic territory collectively correspond astir 50% of full marketplace value and are causing the wide diminution successful S&P 500 stocks. In descending order, Communication Services is disconnected 3%, Information Technology is down 9%, and Consumer Discretionary is down 14%. Consumer Discretionary is being negatively impacted by still-high inflation, concerns astir slowing employment gains and economical growth, and Washington's on-again and off-again attack to tariffs. There has been lone a humble bump successful caller conveyance enactment successful beforehand of imaginable tariffs. That suggests galore consumers are excessively tapped retired to see buying oregon leasing a caller car adjacent astatine pre-tariff prices. Investors who enjoyed the giddy two-year run-up successful IT stocks connected AI excitement support waiting for the all-clear to get backmost into these names. As seen successful calendar 4Q24 earnings, fundamentals among AI system participants are sound. Forecasts for AI spending astatine the endeavor level are lone going up. But these stocks person not yet recovered a bottom. Media stocks successful the Communication Services assemblage are besides looking for a bid. The assemblage rotation disposable successful the 2nd fractional of 2024 intensified successful the archetypal 4th of 2025. At immoderate point, investors volition reason that valuations are sufficiently charismatic to wade backmost in. The marketplace does not yet look to beryllium astatine that point. First-Quarter GDP Outlook The beforehand study of first-quarter 2025 GDP volition beryllium released precocious successful April. At that point, March economical information volition beryllium mostly available. Currently, GDP forecasts for 1Q25 are based connected January and February data. The Atlanta Fed's GDPNow forecast presently indicates a diminution of 1.8% for 1Q25 GDP. A antagonistic GDP speechmaking for 1Q25 would beryllium the archetypal since the archetypal 4th of 2022. The GDPNow forecast was much profoundly antagonistic earlier successful the quarter. When it became evident that President Trump meant what helium said astir tariffs, businesses raced to pre-order overseas goods astatine pre-tariff prices. As such, we look for a profoundly imbalanced nett export-import speechmaking successful 1Q25 GDP. Retail information besides shows consumers are increasing much cautious. Overall U.S. retail income for February roseate 0.2% period implicit month, pursuing a (downwardly revised) 1.2% diminution for January. Spending successful February remained reasonably healthy, with 3.1% maturation twelvemonth implicit year. Argus continues to look for affirmative 1Q25 GDP growth, but we person grown much cautious arsenic well. Recently, Director of Economic Research Chris Graja, CFA, lowered the Argus estimation for 2025 GDP maturation to 2.0% from 2.3%. This includes GDP maturation of 1.6% successful 1Q25, arsenic the federation adjusts to the caller administration. In Chris's view, services spending volition enactment GDP maturation for the afloat year. He expects full idiosyncratic cons