Last Week on Wall Street – March 28th, 2025

S&P 500: -1.53% DOW: -0.96% NASDAQ: -2.59% 10-YR Yield: 4.25%

What Happened?

Markets ended a rocky week with a steep selloff on Friday, as hotter-than-expected inflation data, deteriorating consumer sentiment, and renewed tariff concerns sent investors fleeing from risk assets. The S&P 500 dropped 1.53% for the week and nearly 2% on Friday alone, marking its fifth weekly loss in the past six. The Nasdaq fared worse, sliding 2.59% for the week and 2.7% on Friday, weighed down by mega-cap tech stocks including Alphabet (-4.9%), Meta, and Amazon (each down 4.3%). The Dow lost nearly 1% on the week and 1.7% Friday, with more than 700 points shaved off its value. Volatility spiked, with the VIX climbing nearly 12% as investors braced for further trade policy shifts and macroeconomic pressure.

Economic data added to the downbeat tone. February core PCE, the Fed’s preferred inflation gauge, rose 0.4% month-over-month and 2.8% year-over-year, both topping expectations and signaling that inflation remains sticky. Consumer spending came in lighter than expected, and the University of Michigan’s Consumer Sentiment Index fell to 57—the lowest reading since 2022—with long-term inflation expectations climbing to levels not seen since 1993. The Federal Reserve Bank of St. Louis reiterated the Fed’s “wait-and-see” stance, especially as President Trump’s upcoming reciprocal and auto tariffs, expected to be implemented next week, inject further uncertainty. Sector-wise, Technology and Consumer Discretionary led the declines, while defensive sectors and safe-haven assets outperformed. Gold rallied to a new record at $3,087/oz, and the 10-year Treasury yield fell to 4.25%. International markets outperformance stagnated this week, halting a trend of capital rotation away from U.S. equities amid mounting macro uncertainty. Despite the recent pullback, some strategists see the current weakness as a possible buying opportunity—particularly if upcoming tariff announcements lead to concessions and the AI-driven tech rally finds renewed footing.

Core Inflation In February Hits 2.8%, Higher Than Expected; Spending Increases 0.4%

The core personal consumption expenditures price index, a key Fed inflation measure, showed a 0.4% increase in February, putting the 12-month inflation rate at 2.8%, both higher than expected.
Consumer spending accelerated 0.4% for the month, below the 0.5% forecast. That came as personal income posted a 0.8% rise, against the estimate for 0.4%.

The key takeaway – Core inflation came in hotter than expected in February, rising 0.4% for the month . and 2.8% year over year, according to the Fed’s preferred inflation measure — the core PCE index. These figures exceeded economist expectations and marked the largest monthly gain since January 2024. While headline PCE inflation rose 0.3% monthly and 2.5% annually, matching forecasts, consumer spending came in below expectations at 0.4%, even as personal income surged 0.8%. The personal saving rate also rose to 4.6%, the highest since June 2024, signaling that households may be becoming more cautious amid economic uncertainty.

Markets reacted poorly to the data, with stock indices selling off almost 2% and Treasury yields dipping following the release. The report reinforces the Federal Reserve’s cautious stance, with no immediate plans to cut rates amid sticky inflation and the growing impact of tariffs. Fed officials continue to monitor inflation trends closely, particularly in light of President Trump’s proposed tariffs on imports, which many fear could rekindle inflationary pressures and complicate the central bank’s path forward. With rate cuts already paused this year and inflation still above target, the outlook remains uncertain as markets weigh both policy risks and macroeconomic headwinds.

US Consumer Confidence tumbled again in March

Consumer Confidence Index fell 7.2 points in March to 92.9.
Present Situation Index decreased 3.6 points to 1214.5.
Expectations Index dropped 9.6 points to 65.2.

The key takeaway – Consumer confidence took a hit earlier this week, with The Conference Board’s Expectations Index falling to its lowest level in 22 years. The reading came in well below the key 80 threshold that often signals a looming recession, suggesting consumers are increasingly uneasy about the next six months. Of the Index’s five components, only consumers’ view of current labor market conditions improved — a sign that while job security still feels stable, optimism about the future is slipping away.

Notably, 44% of consumers now expect stock prices to decline in 2025, and inflation expectations rose from 5.8% to 6.2%. Much of this concern appears tied to elevated prices on household essentials like eggs and dairy, along with renewed anxiety over tariffs. With the Trump-era trade policy plan poised to be reimplemented in April, some analysts believe consumers are making strategic purchases now to avoid higher prices later — a trend reflected in the uptick in demand for long-term goods like appliances and electronics.

Meanwhile, intentions to buy homes and cars have declined, weighed down by high interest rates and affordability challenges. The split behavior — cutting back on large financial commitments while accelerating purchases of durable goods — underscores the tension between short-term resilience and long-term caution. As consumer spending makes up nearly 70% of GDP, this shift in sentiment could carry meaningful implications for markets, earnings, and the broader economy in the months ahead.

Federal Reserve Presidents Speak

More work to be done to bring inflation down to the 2% target
Consensus among presidents to keep interest rates at the current levels they are.
Labor market is strong, consumer sentiment is a large worrying factor.

The key takeaway – The week following the FOMC meeting brought a flurry of Fed speak, as several district presidents stepped up to share their views on the evolving economic landscape—and what it could mean for monetary policy going forward.

St. Louis Fed President Alberto Musalem acknowledged that while the U.S. economy continues to expand, growth has clearly moderated in Q1. He flagged a notably weaker-than-expected print on consumer spending, even as the labor market remains resilient. Perhaps most importantly, Musalem warned that inflation risks may be tilting in the wrong direction again, citing a growing chance that price pressures remain stuck above the Fed’s 2% target—or even climb further in the near term.

Meanwhile, Chicago Fed President Austan Goolsbee struck a cautiously optimistic tone in an interview with the Financial Times, suggesting that rates are likely to be “a fair bit lower” within the next 12 to 18 months. Still, he tempered expectations, warning that lingering economic uncertainties could delay any policy pivot. Goolsbee also noted that if market and consumer sentiment begin to reflect expectations of entrenched inflation, the Fed may need to step in more aggressively. Together, Musalem and Goolsbee’s remarks highlight the tightrope the Fed is walking: threading the needle between encouraging continued growth and preventing a resurgence in inflation.

Despite solid hard data, Fed officials are acknowledging the soft underbelly of the economy, waning consumer strength and stubborn inflation risks. For markets, this translates to more ambiguity. Investors hoping for rate cuts are now grappling with a Fed that’s cautious not to ease too early and reignite inflationary pressures. The message? The Fed isn’t ready to fully play dove just yet. While rate cuts remain on the table later this year, the timing, and magnitude, are far from certain. For now, the central bank appears content to walk the line between playing it cool and stepping in with support if conditions warrant it.