March 31, 2025
Good morning,
Friday’s -2% decline on the S&P 500 Index was not predicted, but it was easy to understand. The Fed’s preferred inflation gauge – the personal consumption expenditures (PCE) price index – was released early Friday morning. Unfortunately for bulls, core PCE prices came in a little warmer than expected while Personal Spending came in a little softer than expected, suggesting higher prices (inflation) are impacting consumer behavior (slowing economy). It hints at stagflation.
In a “normal” market environment, the figures on Friday morning would have been met with some disappointment and position adjustments, resulting in a slight drop in stock prices and bond yields. We know because that was the precise reaction in the Futures market for almost an hour after the economic figures printed. However, Friday was not a normal day – there was a buyer’s strike on Friday as investors appeared reluctant to take a bullish stance ahead of the weekend and April 2nd’s tariff escalation deadline. Once the markets opened on Friday, sell orders grew imbalanced as buyers stepped aside and let the prices fall. Unfortunately, that selling trend has followed through this morning as Futures are off another 1% before this morning’s cash market open.
Today is the last day of the quarter – the S&P 500 Index is ~10% below its February high, and it looks like it will close down ~5% for the quarter. It’s worst since 2022. The NASDAQ and Russell 2000 are down about twice that in Q1 with non-U.S. stocks up about 5% for the quarter. More important than all those figures, however, is the proximity the S&P’s low from 2 weeks ago. It is 1.2% above its low (5504) as of Friday’s close. If the low holds, the market remains in its 4-step bottoming mode. If not, it must restart the process at step 1. A big week.
Be well,
Mike