Market Commentary

The month of March was a bumpy ride. The averages retreated back to summer and fall 2024 levels, continuing the slide that began in February. The Magnificent Seven has been repriced and only Netflix remains positive YTD through Q1. Small-Caps fell off dramatically and remain the worst area to invest with an uncertain investment backdrop.

The largest losing sectors for March were Communication Services (-8.71%), Technology (-8.50%) and Consumer Discretionary (-8.36%). Energy (+2.75%) was the only positive sector for March.

S&P 500:                              Mar -5.75%             YTD -4.59%
DOW:                                    Mar -4.19%             YTD -1.27%
NASDAQ:                             Mar -8.21%             YTD -10.42%
Russell 2000:                    Mar -6.27%             YTD -9.52%

Sector Performance YTD:

Communication Services -6.6%
Consumer Discretionary -13.8%
Consumer Staples +2.9%
Energy +8.1%
Financials +1.8%
Healthcare +5.1%
Industrials -1.2%
Technology -12.8%
Materials +1.2%
Real Estate +1.8%
Utilities +3.0%

Current U.S. Treasury Yields:

6 Month Bill             4.19%
2 Year Note              3.86%
5 Year Note              3.90%
10 Year Note            4.15%
30 Year Note            4.51%

The Economy and the Fed:

The Federal Reserve opted to keep rates unchanged at the March FOMC meeting, keeping the rate range 4.25%-4.50%. Though rate policy remained in place, Chair Powell did signal rate cuts (later in year) and communicated positive economic growth through 2025 and into 2026. Powell noted the strong labor market will continue, with a small increase in unemployment. Inflation is trending lower but remains “sticky” and will take some time to reach the 2% target. Recession is not a concern at this juncture. The market is pricing in two rate cuts for 2025.

The Consumer Confidence survey number missed, printing at 92.9 vs. a revised 100.1. This is the lowest level since January 2021. The short-term outlook hit the lowest levels in twelve years. The survey reflects a cautious consumer on big ticket items, yet resilient on services. Core inflation increased 0.4% for February. This put the 12-month inflation rate at 2.8%, higher than anticipated. Consumer spending was up 0.4% for February, below the forecasted 0.5%. These numbers reinforce the Fed’s patient approach to lowering rates.

The market exuberance of a potentially business-friendly administration, an active M&A environment and deregulation catapulted equity prices post-election. The give back has been swift and volatile. Mixed messaging and tariff rhetoric (reciprocal tariffs to begin tomorrow) have roiled markets and U.S. trading partners. Companies withhold CapEx when economic clarity is clouded, making earnings projections suspect. There is $7 trillion in Money Market Funds waiting to be released back into equities.

Looking Ahead:

The S&P 500 EPS growth for Q4 2024 rose +17.1% year-over-year vs. +9.5% forecasted. This was a strong earnings quarter. Most of the market woes appear to be self-inflicted and should pass. Profit taking in extended names has been prudent. Adding to quality names will be beneficial moving forward. Keeping cash on hand (4% yields) helps to buffer volatility and allows for purchasing new positions for portfolios when appropriate.

The market will digest this period of uncertainty and trend higher through 2025. There are terrific names getting thrown out with the bath water and it is important not to capitulate on strong companies with solid fundamentals. Stock picking is and will be paramount. Patience will be rewarded.