Knowledge Center
Market Currents – 3/14/25
- U.S. Markets Retreat After Bright Start. After a positive start to the year, U.S. stocks pulled back in February, with weakness extending into early March as shifting economic and policy conditions took hold. A combination of trade tensions, geopolitical risks, and uneven economic data weighed on sentiment. Notably, the “Magnificent 7” tech giants, which previously led market gains, experienced sharper declines. Meanwhile, international stocks are broadly outperforming the U.S. for the first time in years. On a brighter note, growing expectations for rate cuts have pushed interest rates lower, providing a boost to bond markets and potentially supporting stocks in the months ahead.
- Policy and Trade Developments Keep Investors on Edge. Ongoing debates over trade policy and government spending continue to create challenges for businesses and markets. Sweeping tariffs imposed on China, Canada, and Mexico – along with possible new tariffs on Europe – are raising concerns over supply chains, corporate profits, and inflation. Recent developments in U.S. foreign policy, including evolving stances on the Russia-Ukraine conflict, have added another layer of complexity. At the same time, proposed federal layoffs announced by the Department of Government Efficiency (DOGE) could push unemployment higher if implemented. As these policies move from discussion to implementation, investors are closely monitoring their broader economic impact.
- Economic Growth Slows but Recession Not Yet in Sight. Following solid growth of 2.3% in the final quarter of 2024, early 2025 data suggest the U.S. economy may be cooling. Although a post-holiday dip is normal, weaker-than-expected consumer spending and retail sales hint at more cautious consumer behavior. Jobless claims have also ticked higher, pointing to a softening labor market. Additionally, the Atlanta Fed’s GDPNow tracker recently swung to a -2.4% annualized growth rate for Q1, largely driven by a surge in the trade deficit as companies stockpiled inventory ahead of potential tariff hikes. While these indicators reflect slowing growth, they don’t yet point to a recession.
- Fed Rate Cuts Could Offer Market Support. Investors are increasingly anticipating that the Federal Reserve may lower interest rates, which could help stabilize markets. At the start of the year, markets anticipated just one rate cut in 2025 – now, they are pricing in three. Lower interest rates generally help by reducing borrowing costs for both businesses and consumers, potentially promoting growth and providing a cushion for stocks. The Fed remains cautious, adopting a “wait-and-see” approach, but additional signs of economic weakness could prompt a quicker response.
- Market Outlook: The stock market typically dislikes uncertainty, and the steady flow of headlines out of Washington has contributed to recent volatility. Investors are understandably cautious, but after two years of strong gains, a period of consolidation or a pullback is a normal and healthy part of the investing process. To navigate this environment, we have proactively adjusted portfolios for a more defensive stance. This includes maintaining below-market exposure to high-valuation tech stocks, raising cash reserves within our Dividend Focus and Growth strategies, and strategically rebalancing equity exposure where appropriate. While market corrections can feel unsettling, they often create valuable opportunities for disciplined investors. Rather than trying to time the exact market bottom, we are selectively redeploying capital into high-quality investments as attractive opportunities appear.